You can certainly negotiate and purchase the 2nd while the BK is active, without any intervention from the Trustee. Anything that is negotiated between you and the mtg holder is acceptable. However, in order to purchase the property, this will require the sanctioning of the Trustee. This will effect the equity position of the other Creditors, and that is the function of the Trustee, as we discussed.
You are certainly thinking on the right track here. What I might suggest is to negotiate a discounted purchase on the 2nd mtg. Then approach the Trustee with a release of asset from BK on the property, based on a purchase agreement between you and seller. The fact that you have bought (or will buy) the 2nd at a discount, has no impact on the amount of indebtedness, and the total amount owed (not the amount paid for a discounted mtg) is what is used to calculate whether any (substantial) equity exists, as to whether the Trustee will play ball, or not. Chances are very good that you would have no problem getting this whole thing accomplished without a hitch. The term “without a hitch” does not necessarily mean quickly, so be patient as you approach this one. These cases take lots of time to put ot bed…
Greetings. I have a seller that is motivated to get some equity out of his first mortgage (deed of trust, actually). He filed bankruptcy recently and reports that the second mortgage on the same property is listed in his bankruptcy. I understand very little about BKs and how they affect assets. But I am assuming that since this is his only residence that he would be allowed to keep the house, but how is he getting rid of the 2nd? Is that allowed. He tells me his attorney advised him to sell the house for what he could to get the equity out (he is moving out of the area). This seems unfair to the creditors, especially the holder of the 2nd. Doesn’t the BK trustee have a say over all the assets, including any equity? Or is the primary residence exempt?
I know this is a legal question, but I am wondering if someone can shed light on this before I call my attorney. Also, won’t the second, even if it is listed in BK, be a lien on the property, and prevent title insurance from being issued?
Thanks for any and all thoughts. Sincerely, Kristine
Title tells it like it is…and then until, and unless the court “lifts the stay” and lets the foreclosures proceed, all actions on all the assets are frozen, nothing can go forward by any creditor to collet anything, or legally be paid anything, until the Court then permits same.
As practical matter, here’s what will happen: the 1st lien holder will have its lawyer file a Motion to Lift the Stay, then obtain a court order for same, from the BK Court, then file its foreclosure…which then will wipe out all inferior liens, such as 2d, 3d, mechanics liens, etc., etc., etc…so the 1st is gonna get paid, the others are gonna get scrubbed away.
This is a blatant example of some poorly administered or applied legal advice. A 2nd mtg is a secured creditor, so BK will have very little impact on the 2nd. It will certainly not go away, as implied by the application of the strategy. The only measurable advantage is a temporary one, in where the secured creditor named in a BK cannot attempt to collect the proceeds during the BK proceedings. This will only give tempoprary relief from nagging calls, etc, but no real debt relief, as it would if the creditor was unsecured.
To the issue of the Trustee managing any existing equity available. Yes, that is the Trustees job, to keep watch over all the creditors interest, so that equity is not diverted from them. However, any secured creditor will have priority on the secured asset; in this case the house, paid out in the order of priority… 1st mtg, then 2nd mtg, and any remaining equity divided to the unsecureds. Of course homesteading laws impact this a great deal, depending upon the laws of the state.
In summary, to name a 2nd and not a first will produce no lasting benefit to the homeowner. Finegaling some equity away from the Trustee is possible, depending upon whether they are looking at each transaction closely, and based on exactly how much equity is at stake. Many times, to a homeowner, 10K is a lot of money, but to a Trustee, it is not enough to get concerned over. Just the way it seems to work…
Unless the 2nd mortgage was not completed correctly (UH-HUH), It should not have been discharged. The way bankruptcy works for “Most” secured creditors is if you wanna keep it yah gotta pay for it. It would be worth a call to your attorney.
While I am somewhat certain that you would know considerably more about BK law than I, as I am not an Atty, I am very active in the Foreclosure business. That is how I make my living, via the buying and selling of properties quite often.
The reason that I would like to elaborate on several of these ideas posted in this thread, is that there seems to be a great deal of confusion about BK by many on this site; and for that matter, many in general, and sometime me included I suppose.
Please verify the following, if you will…
I would like to expound on the freezing of all debts after the filing of a BK, of course this will suspend any collection action on the part of the Creditor. After a filing, it will not necessarily suspend (or freeze) the accumulation of interest, as I would take from the inferance of “freezing debt”. Interest will continue to accrue on all secured debt, as opposed to being suspended on unsecured debt. Is this true on both a Ch7 and Ch 13 alike?
Thanks for your input on this and other subject matter. I have just recently noticed you posting, and have appreciated your knowledge…
Obviously, by profession, you know this, however, the 2nd in the original question is only going to get wiped away if there are not enough proceeds from a sale to cover payment of the 2nd; (or other junior liens)m, regardless of naming it to a BK, or not.
In a situation where the asset sells for an amount in excess of the balance of the 1st mtg, the 2nd mtg will be paid, to the extent of the excess proceeds, up to the entire balance of the 2nd, then successively for each junior lien until the proceeds run out.
It would seem that in reading your post you have dismissed the idea that some of these properties sell far in excess of the 1st, 2nd or even 3rd mtgs. While this may be the exception, it does happen quite often, based upon my personal experience.
If the first was being paid throughout a CH.7 (and reaffirmed) and a properly recorded second was noticed, but not paid and did not answer the BK, is the second now wiped out as to person and security (the house)?
JT-IN: thanks for clarifying this. So, if I were to attempt to buy this property, I would need to consider the 1st and 2nd, as these are both outstanding deeds of trust–even if collection on the 2nd is temporarily suspended because of the BK.
Is there a way for me to buy the property with a short sale on the second–now that it’s listed in the bk is this possible? Is there a way for me to work with this seller?
What happens if I pay the owner, he pays off the first and 2nd remains unpaid? A due on sale clause would kick in and the lender on the second could foreclose, right? Can I take over payments on the 2nd or work out a short sale on the 2nd even though it’s in BK?
To you BK guys who truly know as much, and often times, (depressingly, all too often!) more than I do, here’s a website on BK, by lawyers who really have some info…check it out. I think you’ll find a lot of meat there to munch on.
Later today, I noticed last night, there’s going to be a “live” chat by a guy who appears to know his stuff. So I urge you to check this out, and I think you’ll find folk thereon with & from whom you can get some intelligent feedback.