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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 32969
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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We have 2 mortgages on our house. Back in 2009, we filed bankruptcy

Resolved Question:

We have 2 mortgages on our house. Back in 2009, we filed bankruptcy on the arrears for the 2nd mortgage in a Ch 13. We stopped making payments on that 2nd mortgage and I guess we are protected until next December when our bankruptcy is over. Our 1st mortgage is current. The 2nd mortgage the holder charged it off. What does that exactly mean? After our Ch 13 is closed, can they come back and foreclose on our house?
Submitted: 5 months ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 5 months ago.
Hello,

In order to receive a discharge of your planned-for debts in Chapter 13, you must pay all plan payments according to the plan (aka, "full compliance discharge"). The debts that are discharged are those that are actually "provided for" (paid) in the Ch. 13 plan.

Many times, debtors do not list their mortgages in their Ch. 13 plan, because if the mortgages are listed, the debtor's cannot afford the payments, and the court won't confirm the plan.

If you provided for your 2nd mortgage in the bankruptcy plan, and you make all of your planned payments, then the 2nd mortgage will be discharged, and you will have no further "personal" obligation to pay, even if the property is foreclosed after bankruptcy.

If you did not provide for your 2nd mortgage in the bankruptcy plan, then whether or not you make all of your planned payments, the 2nd mortgage is not discharged, and the creditor can attempt to collect from you on any deficiency balance after foreclosure -- or, by court action without foreclosure.

In your circumstance, the creditor has charged off the debt. This means that the creditor has determined that the mortgage is uncollectible, and reported that fact to the IRS, by sending a 1099-C to you and to the IRS. However, this does not prevent the creditor from selling the debt to a debt collector. In almost every case, the creditor will sell your debt to a debt collector, and the debt collector may decide to try to collect from you, via legal action. This assumes that you did not provide for your 2nd mortgage in your Ch. 13 plan. If you did provide for the 2nd mortgage, then the debt collector cannot sue you -- because the debt is discharged. The only recourse would be foreclosure, and if the 2nd mortgage is underwater, due to the property's low fair market value, then no foreclosure will occur.

I realize that the above is fairly complicated. Feel free to ask for clarification if you do not understand anything I've just discussed.

Please let me know if my answer is helpful. And, thanks for using justanswer.com!
Customer: replied 5 months ago.

Ok yes I am fairly confused. =) Not sure what you mean by "PROVIDED" for? Here's what happened. When we filed Ch 13 we put the "arrears" of the 2nd mortgage in our Ch 13 but were supposed to continue to pay the monthly payments to them, just the arrears when into the 13. Well we didn't keep up with them and they charged off the account. So, can they foreclose on us or give us an opportunity to pay something? Perhaps negotiate a "settlement" amount. Clearly our house is underwater. The 2nd holder's mortgage is 70,000. Our 1st mortgage is probably just about covered with the value of our home right now, in a year they might have 10,000 in equity if lucky. What would we do?

Expert:  socrateaser replied 5 months ago.

Not sure what you mean by "PROVIDED" for?

A: Means that the 2nd mortgage is to be paid or expressly denied payment, as stated in the Ch. 13 plan.

Here's what happened. When we filed Ch 13 we put the "arrears" of the 2nd mortgage in our Ch 13 but were supposed to continue to pay the monthly payments to them, just the arrears when into the 13.

A: Then the 2nd was not provided for, which means it won't be discharged when your Ch. 13 plan is completed.

Well we didn't keep up with them and they charged off the account. So, can they foreclose on us or give us an opportunity to pay something?

A: The creditor can foreclose, regardless of whether or not you filed bankruptcy, and whether or not you provided for the loan in the Ch. 13 plan. The creditor's secured interest in the property survives bankruptcy. Only your personal obligation to pay the debt is discharged. However, where there is no equity in the property, there is no point in foreclosing, because there's no money to be recovered. Consequently, your creditor has only one option: charge off the loan and then sell it to a debt collector.

The debt collector can sue you for the unpaid debt, because it was not provided for in your Ch. 13. That won't cause a foreclosure -- it would give the debt collector the authority to garnish your wages to pay the debt over time. Though, many times, debt collectors don't sue, because the debtor doesn't have sufficient income to make it worth the legal fees involved. So, you may escape further legal action.

Perhaps negotiate a "settlement" amount. Clearly our house is underwater. The 2nd holder's mortgage is 70,000. Our 1st mortgage is probably just about covered with the value of our home right now, in a year they might have 10,000 in equity if lucky. What would we do?

A: At the time when you filed for Ch. 13, "lienstripping" of a 2nd mortgage from a principal residence was not permitted by MN bankruptcy courts. However, that law has changed (see, e.g., In re Atkins, 497 B.R. 568 (USBC MN 2013)). Consequently, you could conceivably ask the bankruptcy court to permit you to strip off the 2nd mortgage. This would completely wipe out the 2nd mortgage -- it would cease to exist, when your Ch. 13 ends -- and the creditor could not foreclose. You would only have a 1st mortgage remaining.

 

You would need a bankruptcy attorney to handle this for you, but it's a possibility that did not exist when you original filed, so I would encourage you to investigate this possibility.

If you cannot strip off the lien, then all you can do is wait. If you're not sued within six years of the date that your Ch. 13 ends and the automatic stay is lifted, then you would escape under the MN statute of limitations for breach of contract.

Those are the possibilities. Hope this helps.

Customer: replied 5 months ago.

Ok then one last ? Do we have to file Ch 13 all over again or can we ask our bankruptcy atty to lienstrip it in the one we have filed?

Expert:  socrateaser replied 5 months ago.
You can try to do this within your current plan, but the plan will have to be modified to accommodate the lienstrip.

Hope this helps.
Customer: replied 5 months ago.

This is what I got back from my lawyer???? Is this true??


 


Hi Mary, I am so sorry but we can not modify an existing chapter 13 plan to strip a 2nd mortgage, this would of had to have been done with the initial case filing back in 2009.

Tracy Madson
Expert:  socrateaser replied 5 months ago.

There are a lot of legal issues here, some of which may not be determined without reviewing the Ch. 13 plan language, itself.

What I know, for absolute certain is that the Atkins were able to accomplish the lienstrip after their Chapter 13 plan was already completed and closed! Here's a link to the case, so that you can review it for yourself.

Also, if you cannot strip the lien in the current case, then you may want to consider dismissing the case and then filing a new Chapter 13. Obviously this would increase the length of your bankruptcy -- but if that would permit you to strip the lien, then it may be worth the hassle.

I don't want to get into an academic argument with your attorney. You can offer to pay her for a "memorandum of law" on the question of stripping the lien, now that the law has changed. That may be the only way you will get something more useful than the unequivocal answer you have so far received.

 

Personally, I think that the question is not subject to an instant "yes" or "no" response -- but, I'm not your lawyer, and I don't know all of the case details -- so, there's no way that I can take a conclusive position on whether or not the lienstrip is possible in your unique circumstances.

I'm really not trying to "duck the question" here. The issue is very complicated.

Hope this helps.

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 32969
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 5 months ago.

Our bankruptcy atty won't file a new Ch 13 he told us we would have to go thru a different atty. Is it an option with this for us to hire just a real estate atty to file to the courts to strip that loan? Looks like the Atkins did that?

Expert:  socrateaser replied 5 months ago.
The typical real estate attorney is not qualified to conduct this sort of case -- moreover, such an attorney may not even be admitted to the U.S. District Court. You need a very competent bankruptcy lawyer. No one else will do.

Note: I looked up your lawyer in the MN State attorney licensing database. From the information I found (and, I admit that I could be wrong, due to the lack of a direct database disclosing the identities of lawyers admitted to practice before the federal district court) -- it appears that she may no longer be practicing law in MN. That would explain why she doesn't want the case.

Hope this helps.
Customer: replied 5 months ago.

No Tracy works there, my attorney is Curtis Walker?

Expert:  socrateaser replied 5 months ago.
Oh. Okay. Here's the link for Mr. Walker. Says that he is "authorized," which means he can continue to represent you.

I don't know what else to tell you. If your lawyer says you can't strip the lien, and won't explain why (and you don't want to pay for a memorandum of law), then you'll either have to shop around for someone else, or file a complaint with the MN LPRB. That probably won't make your lawyer very happy, but you're legally entitled to do so.

If you want to look for someone else, then for a lawyer referral, see this link.

Best wishes.
Customer: replied 5 months ago.

That's my question. How do i pay for that memorandum of law? Not clear on what that means. '


 


As far as our atty, he just basically said that closing a 13 case and filing a new one makes his law firm look bad so another atty would have to do it.

Expert:  socrateaser replied 5 months ago.
It's not clear to me that closing the existing bankruptcy is necessary. Which is why a memorandum of law (MOL) may be in order. An MOL is a written brief to a client (or more often to a lawyer in the same law firm) explaining the law surrounding a particular issue of law. In your case, you want to know (1) whether or not it's possible to modify your Chapter 13 to permit you to strip the lien off of your property, and what are the risks, if the issue is uncertain; (2) if it's even necessary to modify your Chapter 13, given that it was not necessary in the Atkins case; (3) assuming it's not possible to modify the existing Chapter 13 or to lien strip without modifying, then what are the risks and benefits of dismissing the existing Chapter 13 and refiling another Chapter 13; and (4) would it be better to complete the existing Chapter 13, and then file a new Chapter 13.

Note: I could research and answer these questions, but the reality is that no matter what I tell you, unless the bankruptcy lawyer you hire agrees with my analysis and conclusions, he/she will decline to undertake the work -- which is exactly what's happening at the moment in your case.

P.S. I've answered an awful lot of extra questions for you in this session. Would you please consider providing a positive rating for another answer, so that I can receive appropriate compensation for this extra effort?

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 32969
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 5 months ago.

I just did. -) Thank you so much. Your input is helping me however. Are you are saying I should be able to type a written brief to my lawyer and he can look into it....

Expert:  socrateaser replied 5 months ago.
Are you are saying I should be able to type a written brief to my lawyer and he can look into it.

A: Typically, your attorney is the one who should be writing the brief to you. But, attorneys know that overwhelmingly, clients do not want to pay for written opinions. Clients want "action" in court, before they feel that they have been provided value for their money. Also, to be frank, the vast majority of lawyers are simply not very good at researching the law. Instead of doing so, they write a pleading for the court, allow their opponent to object, and then let the court do the research.

Bankruptcy attorneys are generally better at research than most. But, for whatever reason, your attorney seems disinterested in trying to determine whether or not you can proceed to strip the lien.

I can think of several possible reasons for this -- some of them reasonable, and some that could be quite troublesome for your lawyer. I just don't feel comfortable discussing these possibilities in an open forum. Not that I'm member of a "club" where lawyers never speak badly of other lawyers. Just that in this particular case, it is a fact that when you filed your Chapter 13, lienstripping was not permitted, and now -- it is. Consequently, there are things that your attorney could not have known for certain at the time you filed.

But, then, I must ask myself: Why is it that the attorney for Atkins seems to have been able to protect his/her clients by adding details to the Chapter 13 plan, that seem to have predicted that it would be possible to later strip the lien, and the details appear to have made this possible?

Random chance -- dumb luck -- astounding prescience -- I don't know the answer. What I know is that the Atkins confirmed plan apparently successfully provided for the possibility of a lienstrip that was legally impossible at the time that the Atkins' plan was confirmed. And, so, I must ask myself, did your lawyer do similarly -- and if not, then why not?

The entire issue seems a little bizarre -- almost like the Atkins' attorney had a crystal ball -- which I do not buy into one bit. But, that is what happened, and so the Atkins were able to strip the lien.

Is your attorney concerned about the possibility of a malpractice action by you, or sanction by the bankruptcy court, for failing to include the Atkins plan language? Seems unlikely, because again, Atkins' plan appears to have accomplished a nearly magical thing, by predicting that lienstripping would become permissible, before the bankruptcy courts ruled it so.

The question now is whether or not, even if your confirmed plan does not have the required language, why can't you strip the lien using some other legal theory, and if none works, then why not dismiss the Chapter 13, thereby voiding the plan, and file a new Chapter 13, and the file an adversary proceeding to strip the lien?

Tough questions, with equally tough answers.

Hope this helps.

That's my muse for the day.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 32969
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 2 other Bankruptcy Law Specialists are ready to help you

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