At present, February 19, 2014, it is possible to strip off and discharge a second mortgage against your house in Minnesota by filing a Chapter 13 bankruptcy.
The Minnesota Bankruptcy Courts have made a Local Rule about the procedures attorneys must follow to strip off home equity lines of credit and 2nd mortgages in Minnesota.
There is a small possibility that this may change in the future, but for cases filed now, the removal of the 2nd mortgage or home equity loan will be effective.
As of February 19, 2014, we are still waiting for the appeal of the original case to be resolved.
The case that opened the door to lien stripping in Minnesota was decided in fall 2011. The mortgage industry has appealed that decision, and a panel of three appellate judges heard oral arguments on that appeal in Spring 2012.
Judging by the questions the judges asked at the oral arguments, two of them thought lien stripping ought to be legal, and the third judge didn’t seem to have a strong opinion either way. Thus I expect that they will affirm the lower court’s opinion, and continue to allow lien stripping in Minnesota.
In most of the rest of the country it is a well-established point of law that second mortgages can be stripped in a Chapter 13, and we expect Minnesota to join the majority. If this case is repealed, then new chapter 13 bankruptcies filed after the repeal would not be able to strip off liens.
Most practitioners expected the appellate court to issue an opinion by now, but as of February 19, 2014 it is still up in the air. We will notify all of our clients with second mortgage liens to be stripped, or in the process of being stripped, as soon as this issue is resolved.
