Mortgage Lien Avoidance by Trustee?

[daedalus]

Hi all,

My case was filed last week (with attorney), but I continue to learn new things about this process everyday. I've recently uncovered the phenomenon of "lien avoidance" in a Ch. 7 if a lien wasn't properly perfected. In the case of a mortgage, that means properly recorded at the courthouse, right? Anyway, we have a first mortgage with CW, but I don't think they have anything recorded. The original lender no longer exists, and the loan was transferred to CW shortly after origination. I've mentioned my concerns about this to my atty, but she has not given us any substantive advice about the likelihood that the trustee will or won't choose this option and what it would mean for us if he/she did.

So, my questions are:

1. Does anyone have any experience with mortgage lien avoidance by a trustee? Does it work as I've described it?

2. If it happens, what might that mean for us?

Other insights greatly appreciated.

[jadams]

If I'm not mistaken, it's only possible to "avoid" a judicial lien in a BK filing. I'm pretty sure a first mortgage would count as a voluntary lien against real property, and thus not be avoidable.

Beyond that, I would suggest reading into deed of trust laws in your state. There are lots of things that are automatic -- and BK and flaws in perfecting the lien may limit their recovery above and beyond taking back the collateral (foreclosure) but I'm pretty sure they always have that right.

What state are you in? In my state the Registry of Deeds is searchable online. How long after getting the mortgage did you check and see if it was recorded? It's not necessarily immediate.

[daedalus]

Hi, I'm in VA, and I checked it this morning. Here I can only see the abstract and type of recorded document online, but I'm not seeing anything from CW in the abstract. I have to go to the recorder's office to see the actual documents.

[daedalus]

also mortgage was originated in 2006

[justbroke]

1. Does anyone have any experience with mortgage lien avoidance by a trustee? Does it work as I've described it?

Not by a Trustee, but I did so, as Chapter 13 Debtors can also perform certain Trustee functions.

The Trustee has the power to avoid (or undue) anything that was not properly recorded prior to the filing of your case. If a title check reveals that there is no lean on your property, or that the lien was improperly recorded (based on underlying State non-bankruptcy laws), then it can be avoided.

2. If it happens, what might that mean for us?

Are you keeping the property? If so, you would need to exempt all the equity you will now have, or the Trustee will try to sell the property to get some money out of it. The Trustee will sell it free and clear of liens.

My question for you is... are you surrendering the property? If so, the Trustee probably sees $$$$$ because of the bad recordation (or lack or recordation) of the lien!

if you are keeping the property, and if you're bored, yeah, go down to the courthouse and check out what was recorded, if anything. If there's no lien (mortgage and deed) recorded, then this could be an issue if you want to keep the property.

[daedalus]

Not sure if we're going to keep it or not yet. Atty said that we did not have to make a declaration about what we plan to do with it, so we left it out for now. The situation is a little more complicated in that we have potential claims against CW regarding the mortgage. We are behind but have not yet received a NOD. We are non-judicial f/c state here, so in order for us to make any claims against the lender, we must force a judicial process. Either hoping they come into BK court and we can file adversary proceeding or they do not come and we can bring an action against them in court. Potential trustee involvement in lien issue is not something that we were aware of until now.

BTW, thanks for the response. I've asked my atty for info on what could happen if the trustee avoids the lien. She's flat out refused to ensure that the lien is perfected. Told me that if it isn't, I should have told her about it. We have given her each and every piece of information she's requested and then some. She never asked us about this, so I didn't know that it was a potential issue until I stumbled upon info about lien perfection and BK during my research.

I think she may be in over her head as it pertains to BK and mortgages and liens, etc. I'm just not sure what to do about it.

[justbroke]

I've asked my atty for info on what could happen if the trustee avoids the lien. She's flat out refused to ensure that the lien is perfected. Told me that if it isn't, I should have told her about it. We have given her each and every piece of information she's requested and then some. She never asked us about this, so I didn't know that it was a potential issue until I stumbled upon info about lien perfection and BK during my research.

Not that you're badgering your attorney, but seems that you are both talking past each other. Your attorney doesn't or didn't know it may have recordation issues, and neither did you. Yet you both seem to be saying that the other was responsible for letting the other know.

I don't know any homeowner who even knows what a properly perfected (recorded) lien looks like. Most attorneys don't even know that there may be perfection issues and most don't even ask!

I think she may be in over her head as it pertains to BK and mortgages and liens, etc. I'm just not sure what to do about it.

There's nothing you can do about it at this point. It is what it is. This was a problem every since the mortgage was "recorded", "improperly recorded" or "not recorded"... whatever the case may be.

This may be new territory for your lawyer. I don't have any really good suggestions for you other than the following. Find your closing documents. Figure out who the title company was. Contact the title company or closing attorney and ask them about the recording of the lien. Check your Warranty Deed if you have it. Check the date stamp on it from the County Clerk. Check the date on your HUD-1 and check the closing date.

(This is all if you want to do some research on your own.)

[StartingOver08]

Just one other note to add to JustBrokes' post, the lien will be recorded in the name of the original funding lender. For example, if your original loan was with xyz bank and that mortgage was sold anytime thereafter, the lien still shows up in the public records with the original bank name. The bank/lender has the right to sell your mortgage (you usually sign for this in that stack of papers at closing). The new lender/servicer sends you a notice to send payments to them, but they do not change the lien in the public records.

[daedalus]

Thanks for the info. Unfortunately, I've not had the best working relationship with my atty. Each time I ask her questions concerning the specifics of my case based on some research I've done, rather than answer she advises me to find a new atty. If I could I would, but paid her $1750, and cannot affors another.

If there's a perfection issue, then I guess the trustee will handle it. We'll be okay no matter which way it goes.

[justbroke]

Thanks for the info. Unfortunately, I've not had the best working relationship with my atty. Each time I ask her questions concerning the specifics of my case based on some research I've done, rather than answer she advises me to find a new atty. If I could I would, but paid her $1750, and cannot affors another.

Wow. That says a lot! Just wow.

If there's a perfection issue, then I guess the trustee will handle it. We'll be okay no matter which way it goes.

Yes, let the Trustee worry about it.