Second and Third Mortgages?

[mike69]

If a non exempt property has a 1st mortgage of approximately 1/3 its value. What does the trustee do with a second and third mortgage that exceed the property's value?

[tobee43]

are you keeping the house? i know here in florida they began a law strip liens against the seconds, when that was only for chapter 13s however, it's all moot if you are filing a no asset 7 and not keeping the house you just list the 2nd and 3rd in your petition and those would be in IIB as well as your first mortgage. if you intention is to stay and not include the house, and can not keep up with all three payments, or refi, they all could and will be a problem in one way or another. you would have to attempt to settle with them, then you would be responsible for the difference since minnesota is a recourse state and will go after you for any deficiency. that is only if you are keeping the house. another way they settle is offer you for an example pay them 30k as opposed to the 100k you owe. they you get issued a 1099A or C or both and have to claim the difference as a gain. (i don't want to speak further as to what happens tax wise as i don't want to overwhelm you with that part of it). however, usually one can prove insolvency and hopefully it will not be a taxable income for you to have to pay.

[mike69]

I'm really just wondering how the subsequent liens are handled in a 7 asset case.

Can a second mortgage be stripped by the trustee in order to have something to distribute to unsecured creditors?

Or does the second mortgage need to be satisfied first?

[despritfreya]

The Trustee is not going to "strip" the junior lien holders.

Since this is non exempt property the Trustee is free to attempt a short sale whereby a kickback is given either by the buyer or one of the lenders to the bk estate. There are threads on this forum discussing the trustee's attempt to create equity where there is none.

If, in the end, the Trustee cannot create equity the property will eventually be abandoned. Once abandoned, it is returned to the debtor. However, if the debtor is not servicing the mortgages, at some point, one of the lenders will foreclose.

Lastly, if this property is rented, any rents collected after the Chapter 7 is filed belong to the Trustee until such time as the property is abandoned.

Des.

[mike69]

Thanks Des.