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Category: Bankruptcy Law
Satisfied Customers: 17248
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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I hold a second mortgage on a real estate property that I sold

Resolved Question:

I hold a second mortgage on a real estate property that I sold in 2004. In 2007, they stopped making mortgage payments. On September 4, 2004, the mortgagor filed for chapter 7 bankruptcy protection. I tried to file a claim and the trustee informed me that (1) I could not file a claim since the note was secured by real property and (2) It was not necessary to file a claim. At the time that he stopped making mortgage payments (Feb. 1, 2007) the principle was $143,358. From that date until the date of bankruptcy (Sept. 4, 2008}, there accumulated $42,738 in interest, late fees, and 18% penalty interest rate (according to the promissory note). The total due on the bankruptcy date was then $186,096.

On October 21, 2008, the bankruptcy court trustee filed a "Notice and Report of the Trustee's Intent to Abandon Interest in Real Property". In this document the trustee states that she is abandoning the real property because the real property contains toxic waste and the environmental clean up costs exceed the value of the property.

It seems to me that the note is no longer secured by the real estate so that I should be able to file a claim....or....I should be able to file a claim for the accumulated interest and late charges.

Am I right and what do you recommend?
Clete Vammen
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 8 years ago.
you can and should be able to file a proof of claim, however since you are the second holder, and the appraised value of the property is less than your note, the trustee will consider it unsecured debt and it will be discharged by the bankruptcy.

In almost all situations like yours even if you file a proof of claim their most likely will be money for you to receive as all his debt would have been discharged
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