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Ellen, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36714
Experience:  Bankruptcy Lawyer. Experienced.
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My wife and I live in Oregon and we filed Ch 7 bankruptcy March

Resolved Question:

My wife and I live in Oregon and we filed Ch 7 bankruptcy March 2009. The bankruptcy was discharged June 2009. Both our first and second mortgage was dismissed in the bankruptcy. We did not reaffirm the first or second mortgage. However, we are just at one year in our modified first mortgage loan under the Obama Making Home Affordable Program. The first mortgage modification is permanent. The dismissed second mortgage is not being paid at all.....and the bank still has the lien. My original plan was to make an offer and eventually settle the second lien for a release. However, due to chronic continued unemployment and no more unemployment benefits, I am now thinking just letting the house go to foreclosure or short sale. The market value on the house is about $280,000. The first mortgage balance is $340,000. The second mortgage balance is $25,000. The house cost $360,000 when purchased 12/2006 and is obviously underwater.

We are happy with the modification of first mortgage and the potential to settle for release of second lien. However, the unemployment is killing all our hope of saving the house.

Q: What would happen if we walk away or go to foreclosure or even settle short sale? Are we liable for any mortgage debt in any of these scenarios? We do have Ch 7 dismissal for first and second mortgage already. We did sign the first mortgage modification only. We are thinking of moving.....reducing expenses all around.....renting less expensive housing.....getting employment in another city nearer to family.
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  Ellen replied 5 years ago.

Thank you for your question. I am happy to assist you.

I am a lawyer with 25 years experience. While I am not your lawyer and do not represent you, I will endeavor to provide you with legal information through this open and nonconfidential forum.

It does not appear that you are liable for any deficiency on the mortgage debt and may allow the house to go into foreclosure

The chapter 7 bankruptcy would have discharged your personal liability on the mortgage but not the lien on the property. This means if the property were to be foreclosed, the lender could sell the property to satisfy the debt but could not obtain a judgment against you for the unsatisfied portion of the debt. However it also means that you cannot sell the property without paying the mortgage in full.

I hope that the information I have supplied helps you.

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