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If our Chapter 7 eliminated all our mortgage debts, and the

Resolved Question:

If our Chapter 7 eliminated all our mortgage debts, and the BK abandoned the property, then the property was sold by the first TD lender at a foreclosure: Does the sale to a private party wipe out the second and third trust deeds so the "surplus" goes back to the original owners? Isn't any attempt by the 2nd and 3rd TD lenders to claim the surplus a violation of bankruptcy laws?XXX@XXXXXX.XXX
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 2 years ago.

Hi JACustomer,

Your Bankruptcy discharged your mortgage debt for all 3 mortgages, but had no affect on the liens (trust deeds).

Because the liens survived the Bankruptcy, and because the Bankruptcy has been discharged, collecting the surplus would not be a violation of the Bankruptcy Code or the automatic stay.

 

I think this is what you wanted to know. If not, please let me know.
Thank you!

 

Customer: replied 2 years ago.
I understand that the liens survive the bankruptcy, however, a private party bought our property at the auction. The same private party buyers at the auction had been in escrow for our house for $150,000 more on a short sale and the second trust deed lender refused to approve the short sale...forcing us into a foreclosure sale instead. The private party bid against the second trust deed lender and was successful in outbidding them by one penny. As I understand California foreclosure auctions, don't they "wipe out" all other liens? If the junior liens were wiped out at the auction by the private party purchase, and the bankruptcy law prohibits collection of a discharged debt, is that why the first trust deed lender sent me the notification of surplus funds? Do I have valid grounds for contesting any distribution to the junior lien holders? These lenders refused to reaffirm the debts in bankruptcy, modify, or renegotiate the loans over the last 3 years, causing us to lose our home of 18 years, so we would like to keep our surplus of $326,007 if possible.
Expert:  cfortunato replied 2 years ago.

Foreclosures remove junior liens from the house - after the proceeds from the foreclosure sale are distributed to all lienholders in the order in which the liens are held.

 

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
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