2nd Lien, Unsecured Portion?

[Rico07]

Our chapter 7 was discharged this year.
We originally took out a 2nd mortgage for:$59,858.

On our schedule D-"Creditors Holding Secured Claims" there is a column that states: UNSECURED PORTION, IF ANY. Our second lien shows a figure of $35,536.

I realize lien stripping is not available in chapter 7 but it is my understanding that all unsecured debt is discharged.

We did not reaffirm and are about to participate in the 2MP program. The lender says they are still secured for the full amount and that this just shows Loan to Value ratio. Is this true???

I need to know before I sign a modification of any kind. Thanks in advance.

JET

[Ihatebk]

Who told you that lein stripping is not valid in chapter 7. I have my lien stripped and then went through a modification plan and the 2nd was treated like an unsectured creidtor (since ther was no equity in the hase after first. Here is how mine went.

House appraised at $112k
1st mortgage $137k
2nd mortgage as $37k.

Sicne the 2nd mortgage had no equity after the priority lein holder judgge ruled it is an unsecured loan.

[despritfreya]

Who told you that lein stripping is not valid in chapter 7. I have my lien stripped. . .

I can assure you there is no "published" authority to strip off a 2nd in a Chapter 7. If you filed an AP in your Chapter 7 and got the Judge to enter a Judgment/Order stripping the 2nd you got it because the lender failed to file an Answer and your Judge decided to enter such a Judgment/Order on the basis of a default.

If you were able to get the entry of such a Judgment/Order in any other way I would like more details. I have filed 2 AP's for clients in the context of a Chapter 7. One was able to get the strip due to the lender's failure to file an Answer (default judgment) and the other is still pending. An Answer was filed in the second case and now we are attempting to negotiate a settlement. If we do not settle we walk since there is no way to win the AP in the context of a 7.

If you do not have a Judgment/Order stripping your 2nd then the lien passed through your Chapter 7 fully intact. The underlying debt was discharged but the lien was not released and, if you attempt to sell you will have to deal with it. Further, if at some point, the 2nd decides to foreclose, you will lose the property unless you work something out with the lender.

Des.

[Ihatebk]

Des, Here is the deal. You have to file a chapter 13 and pay on that for 6 months. When you file on the chapter 13 ask that your lein be stripped. Then you ask for voluntary dismissal from the 13 which does not stop the order of lein dismisa When the 13 is dismissed and closed, your creditors will start calling upi again. Then file for chpater 7 relief and list the 1st a secured debt and the 2nd as an unsecured debt. This is how you get around the system. There are many goood links around th web on how tp do this. I did it and it worked fine. Here is a link that disusses the issue. Sorry I can't post the links becuase I don't have enough points. It can be done, but you have to a little more work to get there....

h t t p : / / -> hismatter.com/money/credit/bankruptcy/chapter-7/lien-avoidance.htm
h t t p : / / -> bankruptcyattorneytampa.net/featured/lien-strip-a-2nd-mortgage/

[despritfreya]

Des, Here is the deal. . .

Ok, so let me get this straight:

1. File Chapter 13;
2. Immediately file an AP to strip the lien under 11 USC 506(a) & (d);
3. Get a Judgment or Order stripping the lien under 506;
4. Remain in Chapter 13 for 6 months;
5. Voluntarily dismiss the Chapter 13;
6. File Chapter 7 when you are ready and classify the 2nd under Schedule F (as you stripped it in the 13);
7. And, by some miracle, listing the 2nd on Schedule F proves that the lien strip that took place in the 13 is valid and you never have to worry about the 2nd again.


And, you say this has worked for you. Have you sold or refinanced the property since obtaining the 7 discharge? My guess is that you have not.

The web site you posted for the Tampa attorney clearly states that the one case he found allowing the strip, like mine, was a fluke. The other web site I could not locate. If you found a web site that states the above works I would love to see it as such is a legal impossibility. Further, I sure hope no attorney advised you to take these steps as if they did, they committed mal practice - not sure if you have any recoverable damages, but there was mal practice nonetheless.

Here is your problem:

11 USC 349(b) states, “Unless the court for cause orders otherwise a dismissal of a case. . . reinstates. . . (2) any lien voided under section 506(d) of this title.”

So, by operation of law, the moment you allowed your Chapter 13 to be dismissed that Judgment or Order you obtained under 506 became void. The 2nd lien is still a valid and enforceable lien against your property and when you try to do something with the property you will have to deal with it. Further, your lender still has the right to foreclose.

You will find that I do not pull any punches on this forum so, I now say that I am sorry to burst the bubble but, I always call them like I see them. I don’t want consumers thinking they got away with something just to find out down the road, when it really counts, that they didn’t.

Des.

[Ihatebk]

It worked exactly as you stated, I live in Idaho and yes I have sold the house 3 months ago with no problems. When they strip the lien on the second you will get a court order say that the 2nd lien is unsecured and that for hence forth is to be considered as unsecured. Once it is declared as unsecured, the 2nd would have to object to the ruling within 90 days, if the do not the order stands. Now only the first has a lien on the home. It worked for me in Idaho and got that advice from an attorney that has done many of them.

[despritfreya]

@Ihatebk

My guess is the Title Company screwed up and you were lucky. No doubt the 2nd will be suing the Title Company once it realizes the error that was made. Count your blessings as it is not your problem.

Des.

[debee]

I stumbled over an article on this topic awhile ago and apparently you can strip off an unsecured second in Long Island - but only if you get the right judge. One will do it, the other two won't. For those who get "the stripping judge" , it means no more lien.

In re Lavelle, No. 09-72389-478, 2009 WL 4043089 (E.D.N.Y. November 25, 2009).

edit to add: Reading an opinion from the circuit court (In re McNeal) in Georgia on this issue in which they state that the judge in the Lavelle case is the only one who has ruled contrary to the Supreme Court (In re Dewsnup) on this issue. So sounds like Ihatebk just got lucky after all.

[despritfreya]

@debee,

I see you did some further research. In fact, what transpired in that NY District over the span of 5 months is interesting. The Lavelle decision, which was not published, came out in November, 2009. In February, 2010 a different Judge in the same District published an opinion saying it the stip off in a 7 was not allowed. Then in March, 2010 a 3rd Judge, again in the same District, followed the published decision and said that the Judge in Lavelle was simply wrong.

Relying on the reasoning in Lavelle and because one of the Judges in my District suggested it and another Judge had actually approved an uncontested strip, I filed an AP in a 7 case in May, 2010 (despite the published opinion). The lender failed to file an Answer and we got a Default Judgment. We have only attempted this 1 other time but, unfortunately, an Answer was filed.

As of the last time I reviewed this issue there were still no published opinions allowing the strip. There were a few more like Lavelle but nothing I could cite to.

As to IhateBk's issue, that is a bit different. He/she filed a 13, obtained an Order or Judgment stripping the lien then allowed the case to be Dismissed. He/she then filed a 7 and got a Discharge. The only reason he/she was able to close on a sale without dealing with the 2nd in some fashion, was a screw up by the Title Company who failed to check with in-house counsel as to the effect of a dismissal of the 13 - assuming the Title Company even knew the 13 had been dismissed and wasn't misled about the Order stripping the lien. The 2nd can make a claim against the Title Company for allowing the closing. The Title Company, if sued, would most likely 3rd party in IhateBk, perhaps alleging some fraud, but in the end the Title Company's insurance will pay the 2nd off as a settlement. Whether or not the 2nd would be smart enough to go after the Title Company, well. . . that's the million dollar question.

Des.

[debee]

Yeah, I know the OPs case and Lavelle's case are different. I also know her ruling wasn't binding & that the other two NY judges ruled differently (think I mentioned that in my post as well). I just thought the Lavelle case was interesting. For anyone living in Long Island, they've got a 1 in 3 chance of stripping the lien off a 2nd in a Chapter 7.

[despritfreya]

For anyone living in Long Island, they've got a 1 in 3 chance of stripping the lien off a 2nd in a Chapter 7.

Know what you mean. . . luck of the draw until such time as a higher Court rules on the issue in that Circuit.

Des.

[Pandora]

It worked exactly as you stated, I live in Idaho and yes I have sold the house 3 months ago with no problems. When they strip the lien on the second you will get a court order say that the 2nd lien is unsecured and that for hence forth is to be considered as unsecured. Once it is declared as unsecured, the 2nd would have to object to the ruling within 90 days, if the do not the order stands. Now only the first has a lien on the home. It worked for me in Idaho and got that advice from an attorney that has done many of them.

Okay... but would like some clarification from you a bit further if you'd care to oblige. You state you've been successful in this however according to your posts, you havent even had your 341 yet for your newly filed Ch. 7... right? So what makes you believe that this is a done deal?

You state you sold this house 3 months ago but just filed Ch. 7 last week - so you were still in your Ch. 13 when you sold it, techically? Or did the 180 day rule apply between filings? Is this the same house you're currently living in that is set to foreclose in June? Also if the lender sought a release of stay due to non-payment on your 13... so did you voluntarily request a dismissal or did your creditor request the dismissal for non-payment? You didnt convert your 13..it was dismissed and from the sound of it, involuntarily, so different things apply. You will now have 2 BK filings on your record as well.

[despritfreya]

Okay... but would like some clarification from you a bit further if you'd care to oblige. .

Good catch Pandora. Should have read posting history. Clearly the facts are much different from what was posted. Looks like a foreclosure will happen in June. Three months ago IhateBk was in a 13 and from the history we know that any sale of real property would not have been the residence. Maybe there was another property that the debtor was able to sell short through Section 363. If so, such is a far cry from obtaining a strip order in a 13, dismissing the 13, filing a 7, obtaining a discharge and then selling property without dealing with the junior lien. Lots of "facts" are missing.

Des.

[Pandora]

hiya Des

I'm just trying to ensure that people dont think this is the norm "oh I'll file a Ch. 20 and be done with the lien..." as it doesnt really work that way; well.. you would know... you're a lawyer

Some things just aren't do-able...and as you said, many things are missing or need to be elaborated upon.