Trustee Unexpectedly Selling Our Home

[march10]

Good afternoon - first post so please bear with me!

I have been searching this site for a similar case but haven't been able to stumble across one. We filed a "no asset" case Nov. 2009 and intended on discharging all credit card debt and retaining our home which has two mortgages attached. There was appx $12k in equity, but the exemption in our state is $40,400 so we were well within the exempted amount. At our 341 meeting the trustee said he would be "avoiding" the second mortgage because it was not notarized properly and the first mortgage is in my husbands name alone, so he is "avoiding" fifty percent of that lien due to my marital interest in the property. He then proceeded to tell us he would be employing a realtor to sell our home to recover the asset and be switching us to an "asset case".

Talk about being thrown for a loop! We had no intention of surrendering our home, have never been a day late on the mortgage payments and our attorney kept saying he had never seen anything like this before. Well, fast forward to now and we have accepted the fact that indeed our home will now be sold. The questions that I have my attorney can't seem to answer are the following: 1. Are we paid our homestead exemption once the home is sold? and if so where are we at in the pecking order of how the funds are disbursed 2.Do we need to file a "proof of claim" in regards to our homestead exemption? 3.Has anybody had any experience with how long the trustee has to sell a home? its a tough market and we are just wondering how much time we have to line up a new home for our family. The current order from the court states the realtor will list for 180 days. Not sure what happens after that 180 days is up?

Thank you for your time and input. Like everyone else on this forum, I can't believe just how difficult a process this is. We are just dreaming of the day when it will all be over.

[freeatlast09]

What state and district are you in?

[SMinGA]

Do you mean your state allows $20,200 exemption per person, so you thought you had $40,400 - but the trustee says your husband only was on the loan so its back to $20,200?

And he found an error with the 2nd, so with that gone there is more equity (before even dealing with your exemptions).

What state are you in? Is it a community property state? If so, I wonder if the TT can discredit your share of the homestead exemption, if that is indeed what is happening.

Any possibility of converting to a ch. 13??? If you no longer have to pay the 2nd, maybe that amount could become your plan payment. Is that amount X 36 is enough to cover the non-exempt equity with a little room to spare?

[montana59451]

That should be ILLEGAL! I can't believe that he would do that! Have you called the 2nd mortgage bank and told them what the TT is looking to do? I'm sure that THEY would have a problem with this "avoidance". The bank has unlimited funds for attorneys....maybe they can help!

[march10]

We are in OH. The exemption is $20,200 per person - the trustee isn't disallowing our exemption. The second mortgage being avoided is for $95k and if he succeeds at reducing the first mortgage to 50% that will be another $100k in the pot, plenty of money for the unsecured creditors but the mortgages are out of luck. I have talked to the legal dept. at Wells Fargo who holds the second and believe it or not I was told there is case law on the books that if a lien is not "perfected" properly it can be avoided. According to Wells they aren't going to fight. Its been a really crazy ride let me tell you. We contemplated switching to 13, but our atty. said the trustee can object to that as well because he will argue the creditors will be better off if he is allowed to sell and disburse the proceeds. We are resigned to the fact it will be sold, just want a handle on what if anything we will be able to walk away from this whole nightmare with.

[newbie2]

We are in OH. The exemption is $20,200 per person - the trustee isn't disallowing our exemption. The second mortgage being avoided is for $95k and if he succeeds at reducing the first mortgage to 50% that will be another $100k in the pot, plenty of money for the unsecured creditors but the mortgages are out of luck. I have talked to the legal dept. at Wells Fargo who holds the second and believe it or not I was told there is case law on the books that if a lien is not "perfected" properly it can be avoided. According to Wells they aren't going to fight. Its been a really crazy ride let me tell you. We contemplated switching to 13, but our atty. said the trustee can object to that as well because he will argue the creditors will be better off if he is allowed to sell and disburse the proceeds. We are resigned to the fact it will be sold, just want a handle on what if anything we will be able to walk away from this whole nightmare with.

Wow. I am truly shocked. Giving that the 2nd isn't even going to put up a fight, it does sound like the trustee smells money and is going to go through with it.

I would question though how the first can be forced to a 50% payoff? (I think that is what you stated above) Also, I do believe you are still entitled to your exemption amount of money. Your attorney should at the very least be able to tell you that much.

I'm so sorry this is happening to you.

[HHM]

Generally, you are still entitled to the exemption, so if the trustee does sell the home, he must pay off the first, cut a check to your for your exemption, and then use the rest to pay unsecured creditors.

Not sure about the first mortgage being cut in half, no legal basis to do so.

You do have options, you can convert to a chapter 13.

[keptdigging]

Wow. It's little comfort, but thanks for sharing. I know I'll be checking the recording of my liens before filing. Right now I'm counting on my second to keep my home... would definitely want to explore options (like a 13) BEFORE filing.

[Tman]

I am in Ohio and have been in real estate for 25 years. I am curious just how the TT determined that the second mortgage wasn't perfected. Did he review the actual paperwork (filed mortgage)? If so did you have to provide it for the TT? Something doesn't sound right.

[march10]

To keptdigging: I so WISH I would have researched more and found a site like this before we filed. I think we had just reacted in panic mode and found an attorney that was close by. To Tman, yes he had a copy of the mortgage and in the space where the notary should have "printed" our names she didn't so due to that simple oversight the mortgage is considered invalid....insane but true!

[SMinGA]

Have heard that before - about unperfected liens.

So I guess the $12,000 in equity has become $107,000 equity, of which less than half is exempt. A ch. 13 likely would not help, as you'd have to pay at least $1200-1500 per month to cover the non-exempt equity, and I'm sure your 2nd payment is not that much.

On the bright side - you should come out of this with ~$40,000. When that happens, you can set it aside to use eventually for a downpayment. And you will have many months of not paying your 1st & 2nd mortgages while this plays out. So save that money for moving expenses, deposits, etc.

[spidge]

Have heard that before - about unperfected liens.

So I guess the $12,000 in equity has become $107,000 equity, of which less than half is exempt. A ch. 13 likely would not help, as you'd have to pay at least $1200-1500 per month to cover the non-exempt equity, and I'm sure your 2nd payment is not that much.

On the bright side - you should come out of this with ~$40,000. When that happens, you can set it aside to use eventually for a downpayment. And you will have many months of not paying your 1st & 2nd mortgages while this plays out. So save that money for moving expenses, deposits, etc.

When the trustee asks where all the monies from the non payment of mortgages went what could be a good explanation so that he/she does not demand it?

[JackBondLove]

Generally, you are still entitled to the exemption, so if the trustee does sell the home, he must pay off the first, cut a check to your for your exemption, and then use the rest to pay unsecured creditors.

Not sure about the first mortgage being cut in half, no legal basis to do so.

You do have options, you can convert to a chapter 13.

I've always thought that the only way the trustee would sell a liened and exemptable asset was to sell it enough to be able to payoff the lien and then the exemption - and in practice, only when the sales price would be expected to be well in excess of these amounts.

It appears that the trustee is using some type of legal technicality to payoff the creditors (and thereby get his cut) rather than the 2nd lienholder. And evidently, it seems to be common as in the case the 2nd lienholder is not even fighting it!

But as someone else said, based on this technicality, you have just come into free money, even if it meant losing your home. Now go buy a cheap home for cash!

[MakinMeCrazy]

Just curious......what if the money is NOT enuff to pay off the 1st mortgage and settle with them for the 40K exemption? does that mean they are sol? or do they get the 40K exemption first and then have to repay to the mortgage? or the mortgage co is sol? THIS is most interesting!