Active 13 ... selling house and lien stripping

[Pennynot]

My partner is in an active Ch 13 bankruptcy with his ex-wife that will be finished in January 2017. The ex received the house in the divorce and is now 2 1/2 months past due on the mortgage. She wants to short sale the house, which his name is still on the mortgage because she didn't refinance (because of the bankruptcy). They have included their second mortgage in the bankruptcy for lien stripping.

My questions.... can she sale the house during the bankruptcy and if she does, how does that affect the lien stripping of the second mortgage?

I went through a Ch 7 when I divorced 4 years ago and my ex went through a Ch 13 at the same time, so we worked with the lawyer together on both bankruptcies...and I know a big plus of the Ch 13 was lien stripping the second mortgage....but my understanding was that the bankruptcy had to be finished.

[LadyInTheRed]

You are correct that the Chap 13 has to be completed to get the lien strip. She also needs authorization from the trustee or the judge to sell the house.

They need to talk to their bankruptcy attorney to determine how best to proceed.

[159515951]

I think the court would have to approve selling an asset (the house). That said, has she asked her attorney if it's possible to modify the Plan to surrender the house? If that could be done, the 2nd would just be considered an unsecure debt like any other.

I don't see any real benefit of a lien strip if the house is being short sold anyway...

[Pennynot]

So a second mortgage goes away with a short sale since it was a lien against the property, even though the second was included in the BK? He is going to contact the lawyer Monday, but unfortunately the ex has not been forthcoming about her missed payments and anything she has already done, and he's trying to gather all the questions he needs. The ex is saying the house wasn't included in the BK, so it doesn't matter. He is saying it does matter to the courts (and it sounds like you all are saying the same thing).

[Pennynot]

And 159515951 thank you for the idea of modifying the Plan to surrender the house. He will include this question when he goes to the lawyer Monday.

[159515951]

So a second mortgage goes away with a short sale since it was a lien against the property, even though the second was included in the BK?

My understanding is that after the bank forecloses in rem (against the property, not the person, as it was surrendered in bankruptcy), the 2nd and any outstanding balance on the 1st mortgage would become unsecured debt and be treated the same as any other unsecured debt.

[LadyInTheRed]

He is going to contact the lawyer Monday, but unfortunately the ex has not been forthcoming about her missed payments and anything she has already done, and he's trying to gather all the questions he needs. The ex is saying the house wasn't included in the BK, so it doesn't matter. He is saying it does matter to the courts (and it sounds like you all are saying the same thing).

It does matter. All debt is included in the bankruptcy, even if the payments are made directly to the creditor.

I am glad he is going to see an attorney. The plan assumes the house will be retained and that the first mortgage will be paid. Not paying the mortgage is technically a violation of the plan. Depending on how the first mortgage compares to standard housing expenses, the plan payment could change if the home is surrendered. Another thing your partner should ask about is bifurcating their case into separate cases, so that he can proceed on his own without worrying about what his ex does. Hopefully, their current attorney can help with that. But, it is possible the attorney will say they each need to find their own separate attorney if he thinks their interests are in conflict.

If the plan is modified to surrender the property and the loan is discharged, then there really is no point in going through the hassle of a short sale. The ex could stay in the house until the bank forecloses. But, I guess that isn't really your ex's concern.

[despritfreya]

I was going to post this earlier today but got interrupted. So. . . for whatever it is worth. . .

So a second mortgage goes away with a short sale since it was a lien against the property, even though the second was included in the BK?

I need to clarify this. As Lady indicated the lien strip does not happen until payments under the Plan are completed AND a chapter 13 discharge is entered. There is no "short sale" during the pendency of the 13 unless the lender agrees. The bk court has no authority to "force" a lender to accept a short sale so don't bother trying to get such a court order unless you have it in writing (in blood if possible) that the second agrees to the sale.

The property can be surrendered via a modified plan but the property will remain titled to the debtor until one of the lenders forecloses or obtains a DIL (or a short sale is successfully negotiated and closes). The second is already being treated as a general unsecured creditor inside the context of the chapter 13 due to the lien strip. Nothing changes as it relates to the claim of the second.

Des.

[Pennynot]

You have all given us so much to work with, thank you so much!!!! He is meeting tomorrow and he now has a lot of options to discuss with his lawyer that he never considered before. This forum is amazing. Thank you!!!!