New York law provides that judgments, as well as first and second mortgages, act as liens against real property. That means that once a judgment is entered against a customer, it acts as a lien against their real property, along with a mortgage or Home Equity Line of Credit (“HELOC”) lien on the real property. These act as secured debt that must be paid when one party refinances or sells their home.
Under New York State law, a judgment lien can be “discharged,” which means removed as a lien on the property and reduced to an unsecured debt, only if the first and/or second mortgage exceeds the value of the property. living place. Additionally, under New York State law, the $50,000 Spouse “Home Exemption” takes precedence over a Judgment Lien. Therefore, if a first and/or second mortgage, plus the Homestead Exemption exceed the value of the real property, a judgment lien will be “removed.”
To vacate a judgment lien, a Motion must be filed in the County Court in which the judgment was entered and where the real property exists.
In the current real estate crisis, many houses are “under water”. This means that the value of the home is less than the value of the first or second mortgage.
In Bankruptcy Court, it is quite common to remove a judgment lien if it is not secured by real property value. Removal of a judgment lien in the Bankruptcy Court means that the debt becomes an unsecured debt, either discharged in full in a Chapter 7 bankruptcy or paid off under a Chapter 13 bankruptcy for pennies on the dollar.
A second or third mortgage can also be discharged in a bankruptcy proceeding if the amount of the second or third mortgage is not “fully secured” by the real property. New York bankruptcy law states that as long as a mortgage is not 100% secured by real property, it can become an unsecured debt. That means if the value of your client’s mortgage, plus the $50,000 homestead exemption per spouse exceeds the value of the real estate, then the second or third mortgage will be eliminated in a Chapter 13 bankruptcy.
Until recently, a bankrupt party was not allowed to divest a second or third mortgage under a Chapter 7 bankruptcy. However, a recent case decided by Judge Eisenberg in the Eastern District of New York (Long Island) , has argued that a totally unsecured second mortgage can be eliminated in a Chapter 7 bankruptcy.
However, if the second or third mortgage or judgment lien is secured by one percent of the property’s value, it cannot be reduced to an unsecured debt.
Bankruptcy Court judges for Westchester and Hudson Valley (Southern District of New York) have yet to rule on whether they will follow Judge Eisenberg in discharging unsecured mortgages in Chapter 7 cases. In fact, two cases in the Bankruptcy Court of Appeals have ruled against the removal of bonds in Chapter 7 cases.
