The median home price in the Bay Area has risen to over $500,000 for the first time in five years, the Mercury News reported this week.
For lots of home owners, that says the window of opportunity is closing.
The usual thinking is that rising values are good for homeowners and bad for those trying to break into the real estate market.
You’d think that a home that’s worth more than it was before is a good thing.
Lower values make lien strips possible
But, as a consumer lawyer who has advised homeowners through the last five years of recession, I see the door closing on homeowners.
At lower values, borrowers might be able to get rid of their equity lines and junior deeds of trust in Chapter 13; let the value go up, and the opportunity to shed the mortgage goes away.
The ability to strip off a voluntary lien on your home in bankruptcy is dependent on that lien being completely underwater. It doesn’t require applications, negotiation or lender cooperation.
All it requires is the right value for the property and the liens that are ahead of the lien to be stripped.
If there is a single dollar’s worth of equity for the lien to attach to, the bankruptcy court can’t force a change in the loan terms, much less wipe out the lien.
So for homeowners with underwater houses and two liens, it makes sense to see if at today’s values, that junior lien can be stripped off the property.
Sit around admiring your appreciating property, and you may be stuck paying the junior lien for another couple of decades.
Image courtesy of Flickr and US Army Corp of Engineers.