Second Mortgage on surrendered home

[goon]

I have gotten some mixed information between my lawyer and his paralegal, so figured I would ask here and see if I can get a better understanding.

I had a house which was surrendered (foreclosed) in my Ch13, House was significantly underwater (owed about $190k total, sold at auction for $40k). I had a second on the house for about $35k. The second filed a secured claim for the $35k, all claims were "allowed".

Originally my lawyer had stated that once the house foreclosed that the second would become unsecured debt (because I was completely upsidedown). Later when working with the paralegal she stated that the second would remain secured debt. At this point I am over 2 years into my 5 year plan. Now to add more confusion National Data Center (Yes I know anything there is to be taken with a grain of salt) shows it as a secured claim but shows the "Principal Owed" column as $0.

So from what I remember from the lawyer it almost sounded like the second needed to file a modified claim as unsecured after the foreclosure? is this the case? since they didn't did they essentially forfeit their claim?

So to expand a little I am sure the first response will be that it doesn't matter to me who does or doesn't get paid during my plan... Let me tell you why it does.... If the second will not be paid, then I am within $100 of being a 100% payback plan (including trustee fees and everything else). So first off if I am that close to being in a 100% plan I want to know.

Secondly my 2 vehicles which are being paid in the plan are being paid every month out of my plan payment (and being paid interest). In theory if I was to take some of my savings and give it to the trustee, and he were to put it against the car balances ( which he has been with all payments since confirmation (after the legal fees were taken care of, and of course the trustee's cut with each payment) , then I could in theory pay less interest on the vehicles, and finish my plan with less out of pocket than I would have if I continue making payments. (This all assumes that I am truly within $100 of being 100% payback)

Sorry if that last part is a bit confusing, but what it breaks down to is the possibility of me getting out of this A. sooner than 5 years and B. with less total out of pocket than would be sent to the trustee otherwise. The real question at the end of the day is did the second screw up by not modifying their claim(or re-filing) to be unsecured.

Thanks,
Goon

[despritfreya]

Your Plan should have the following provision as it relates to the surrender of collateral:

Any secured claim filed by such creditor shall receive no distribution until the creditor files an allowed unsecured claim or an amended proof of claim that reflects any deficiency balance remaining on the claim. Should the creditor fail to file an amended unsecured claim consistent with this provision, the Trustee need not make any distributions to that creditor.

While this language is a contradictory (says "shall receive no distribution until. . ." and then says "Trustee need not make. . .", I believe it is up to the Trustee. Please. . . no comments from the peanut gallery about the poor quality of the language of the model plan. While I had some input I did not write the final version.

The Order Confirming your Plan should have the following provision as it relates to the surrender of collateral:

(5) Surrendered Property. Upon confirmation of this plan or except as otherwise ordered by the Court, bankruptcy stays are lifted as to collateral to be surrendered. Such creditor shall receive no distribution until the creditor timely files a claim or an amended proof of claim that reflects any deficiency balance remaining on the claim. Assuming the creditor has an allowed proof of claim, should the creditor fail to file an amended claim consistent with this provision, the Trustee need not make any distributions to that creditor. Debtors surrender the following property. . .

Again, there is contradictory language however, this time it references that if the creditor has an allowed claim (timely filed is "allowed"), and then fails to amend the claim to unsecured status the Trustee "need not" pay it. This tells me it is up to the Trustee.

You might want to call the Trustee's office to find out what his position is regardless of what the Data Center shows.

Now, if your 2nd was a purchase money second (part of the financing when you bought the home - not taken out later) and the home has been foreclosed your attny can file an objection to the claim as it is not entitled to either secured or unsecured status due to Arizona’s anti deficiency statute.

Des.

[goon]

Hi Des,

Thank you for the response, looks like good news for me. I didn't even think to look if there was specific language for this scenario, but I do have the exact same language in both the plan and the order confirming. (Order confirming calls out the property and both creditors, first and second, right below).

In this case the second was not for purchase, so in theory they could have filed an amended claim, but did not.

As far as confirming with the trustees office, can I do that without going through lawyer? (now that everything is filed and confirmed my lawyer tends to be not very responsive unless there is more money involved for him (ie modifications or something)). I don't want to rustle any feathers with the trustee as I have "representation" (put in quotes for sarcasm's sake), but would really like to confirm this as it could affect how quickly I can get everything paid off.

Thanks again,
Goon

[despritfreya]

There is nothing wrong with you calling your Trustee's office. You simply want to know if the Trustee is going to pay the claim. This is not something your Attny can necessarily answer.

Des.

[goon]

Well turns out that the trustee will not be paying the claim for the second since the creditor didn't amend the claim. What is amusing about this is the same creditor (a local credit union) is also the creditor for one of the vehicles which is getting paid through the plan, they fought us tooth and nail on the vehicle value and what not, seemed like they would have been all over filing this correctly, especially since my secured's will be paid off before year 3 of the 5 year plan, so they would have been almost guaranteed to get something for their trouble.

Of course after figuring all this out I will not be moving forward with the idea I laid out earlier. We found out that my wife is pregnant again (unplanned), once the little one is born I will modify the plan, should have a lower plan payment for the last 2+ years (based on lower DMI because of the extra mouth to feed and clothe) and as such should be quite a bit further from a 100% plan than I was figuring based on the current plan payment.