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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 26155
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by West
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have been engaged in the short sale process with my lender

Customer Question

have been engaged in the short sale process with my lender on my property in California for over 6 months now. they have finally accepted an offer and have approved the sale. however, we now discover -- upon receipt of title report -- that there is a judgement lien on the property, and this creditor is unwilling to negotiate a reasonable settlement. Chapter 7 bankruptcy is an option I previously considered but had hoped to avoid, especially now that time is of the essence and I don't believe the bank will wait to close the transaction much longer -- not to mention that I also can't afford the cost of waiting 3-6 additional months. Thoughts on ways to expedite discharge?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Roger replied 1 year ago.
Hi - my name is XXXXX XXXXX I'm a Bankruptcy litigation attorney. Thanks for your question. I'll be happy to assist you with this issue.

One question - - is the judgment lien a result of a loan secured by the real estate (property was pledged to lender) OR is it a judgment secured by no collateral or collateral other than your home?
Customer: replied 1 year ago.

Hi Kirk, no the judgment came about as a result of a lawsuit I could not answer and thus is secured by NO collateral except for the lien placed on the home by default. the creditor has no property rights otherwise.

Expert:  Roger replied 1 year ago.
Ok. Thanks for the information.

In this case, your mortgage loan would be a priority debt to this judgment, and the judgment should only come into play if there was enough money to pay your mortgage off in full. If the mortgage was fully paid, then the judgment creditor would have a right to collect. But, if there's no money to pay the judgment creditor, then nothing would be paid from the sale AND the judgment would not encumber the property.

The lien would still remain against you - but not the proper because there was no equity/cash to pay the debt. Thus, the judgment lien should not affect the transaction.

I hope this answers your question, but if you need something further, please don't hesitate to ask.
Customer: replied 1 year ago.

I have one more questions...

Expert:  Roger replied 1 year ago.
Ok. Let me know what else you need. Thanks!
Customer: replied 1 year ago.

can't send reply. see error msg:


Access Denied

You don't have permission to access "http://www.justanswer.com/bankruptcy-law/7vepp-engaged-short-sale-process-lender.html" on this server.


Reference #18.859cfea5.1373748293.67f6c8b

Expert:  Roger replied 1 year ago.
Huh... Just post it below in the box. That'll be fine.
Customer: replied 1 year ago.

I am being told by my realtor as well as escrow that the short sale transaction CANNOT close without this creditor being paid/dealt with in some way. Of course, the property is upside down and the bank is owed twice what they are agreeing to accept in the short sale. They are also offering a very nominal fee to the 2nd liendholder, and a small amount of $$ to assist with relocation -- but the bank will not deal with personal judgement liens such as the one described above, but the lien is currently clouding the title to the property.

So if what you're saying is correct, how do we get around the judgment liens in escrow in order that we might close the transaction? I don't care that they maintain a judgement against me personally, but there are obviously no funds available in the short sale to pay them.

What say you?

Expert:  Roger replied 1 year ago.
See below.
Expert:  Roger replied 1 year ago.
This lien should be treated like a second mortgage or anything else that's not a first lien. If a foreclosure or short sale occurs, the first is paid all funds up to the amount of the debt. If there is money left over, it would go to the next creditor, and so on. BUT, if there's no money to pay the second mortgage, then it (second) becomes an UNSECURED lien and the lien is NO LONGER a lien against the property - - instead, it's a lien against you. That's the same way this judgment lien would be treated.

What needs to be understood is that the judgment lien is against you - and is not specifically a lien against this property. It's like a federal tax lien. It's not a lien against a person's real estate. Instead, it's against the person. If a person's property is sold, a judgment creditor, IRS, etc. only gets paid if there's money left from the transaction.

Also, the lien DOES NOT run with the real property. It stays with you. So, there shouldn't be an issue with a cloud because a judgment lien can only capture money IF there's money left to pay after the priority lienholders are paid in full.

Because you're in a short sale, there's not even enough money to pay the first mortgage, so there should really be no issue with this judgment creditor. The creditor won't be paid and the lien will stay against you - not against the property being sold.

If the realtor doesn't see this, you may need to consult a bankruptcy or debt relief attorney to explain this to the parties involved.

Please POSITIVELY RATE our conversation so I may receive credit for my time. There is no attorney-client relationship and this communication is not privileged.
Customer: replied 1 year ago.

Thank you so very much for your time. I will most certainly POSITIVELY RATE our conversation as it was most helpful. These issues become difficult because neither realtors or escrow officers know the law, they simply know they can't close without clear title, i.e., a release of all liens from the property. So are you suggesting that the short sale can close around these unsecured liens? and if so, how? Is there a specific form/document to be submitted to escrow that gives them the authority to simply ignore the demands from the judgment creditor? Will it require that I file a bankruptcy in order to obtain this document?

Expert:  Roger replied 1 year ago.
There are no forms that I'm aware of. Instead, it's just an issue of lien priority and recognizing the difference between a lien secured by collateral (the house) and an unsecured lien - which is what you're dealing with here.

As long as there's no money to pay out to this creditor, there abound be no issue with closing with this judgment lien in place. What the realtor doesn't understand is that the judgment lien is not like a first mortgage lien.

You shouldn't have to file bankruptcy to get this sone, but you'll likely have to get an attorney to give the realtor and escrow officers an opinion that the judgment is against YOU - not the property - and as long as no money is coming to you, the the judgment will just remain against you and doesn't remain a lien against the real estate.
Customer: replied 1 year ago.

remember, in my earlier reply (see above reply Saturday, July 13, 2013 4:51 PM EST) I indicated that there WOULD BE relocation funds made available to me through the short sale which would be sorely needed for me to relocate. Sooo... problem?

Expert:  Roger replied 1 year ago.
Well, this would only be a problem if the money were coming from proceeds of the sale of the house. I understood that this was something that the lender was offering you as consideration to move.

However, if the money is coming from the sale, then YES it would be an issue because this would be money from the sale that isn't claimed by the first lienholders. In that case, the next creditor in line would have a claim.

If you're unsure how this deal is structured, that's something you'd have to get straight. But, if it's not proceeds from the sale, you should be ok. However, you're going to need to consult a local lawyer about navigating through this because the realtor and escrow officials aren't likely to proceed without some legal assurances.
Customer: replied 1 year ago.

yes, you are correct, the relocation funds are definitely NOT proceeds from the sale but rather an incentive provided to get me to cooperate with the sale/move -- hence, "Cooperative Short Sale". But I will most definitely have legal counsel advise the realtor and escrow on this so we can move this thing forward. Thanks so much for all your help!

Expert:  Roger replied 1 year ago.
Yes, I thought that was the case, BUT after your question, I just wanted to make sure that we were on the same page!

I think you're going to need a lawyer to help you through this because the realtor and escrow company and buyer may be a little hesitant without some assurances.
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 26155
Experience: BV Rated by Martindale-Hubbell; SuperLawyer rating by West
Roger and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 1 year ago.

Hi Kirk,


 


I do have one last request, can you please provide me with the statute # re: lien priority that you are relying upon in response to my inquiry? It's unbelievable to me how many of the local attorneys are not on the same page with you on this issue when it comes to short sales, but it's logical and seems it should be common sense that this would be the law. I'm searching now for a local lawyer with the smarts to help my broker and escrow understand this. Of course everyone's concern is their ability to obtain clean title. So, though the law may be what it is, how we get to clean title is what's throwing us all I suppose.

Expert:  Roger replied 1 year ago.
Here are a few links you can read that cites the law and examples:

http://www.pahl-mccay.com/NewsInfo/Articles/PriorityofSecurityInterestsvsJudgementLiens/tabid/112/Default.aspx

http://www.brewerfirm.com/articles/article-052709c.html

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