Chap 7 and secured loan (mortgage) BK7 in FL

[fmccarthy]

I've been reading a number of the stickies and getting some great information. THANKS for this forum and the members!

There is an issue I am trying to get my head around but I can't keep straight: the treatment of non-discharged assets by trustees. In the case of a secured loan - mortgage - in FL, all I need to BK is the mortgage. If I do that and make no objection to the foreclosure (don't even contest the automatic stay), the house gets surrendered to the bank. If they want to claim a deficiency - difference between sheriff sale and the note, does the trustee have the right to come after other assets to make up the difference? Or, would the court use the county tax value as the value of the home, even if it is more than the proceeds of the sheriff's sale? ALso, in Florida, there seem to be two values, even forgetting about the homestead/cap, the "Just Market" and "Sales Equivalent" (which normally is higher). The Just market is more the textbook definition of FMV but the sales-equivalent figure represents comps, which in my view arguably is the market value.

This light (unfortunately a red one, as in a question) went on about 20 minutes ago, reading some of the stickies when someone was talking about assets sold to satisfy the unsecured debts. I said to myself, "Wait a minute, it's secured by the house as an asset, which I am willing to surrender"

[LadyInTheRed]

Welcome to BKforum!

I think you misunderstand the process, but I can't quite pinpoint what you don't understand. So, I'm going to explain in a way that probably includes things that you already understand.

There is no such thing as a discharged asset. Debts are discharged. When a mortgage is discharged in BK, the lender retains their security interest in the asset and can foreclose if there is a default. I they want to foreclose during your BK, they have to file for relief from automatic stay. They are unlikely to go to the trouble to do that if it looks like your case is going to close as quickly as most Chap 7s do.

If they want to claim a deficiency - difference between sheriff sale and the note, does the trustee have the right to come after other assets to make up the difference?

I am pretty sure that the only way the bank can get paid on a deficiency claim is if they foreclose before your case is closed and file an unsecured claim for the difference between what they receive from foreclosure and the balance due on the mortgage. That is very unlikely to happen. What will more likely happen is that the bank will foreclose long after your BK is closed and they will be out of luck as far as any deficiency is concerned. The trustee will not care. [It also may be that a creditor can file both a secured claim and an unsecured claim based on what the value of the home. But the unsecured claim may be disputed because it is impossible to know the deficiency until after the foreclosure. Either way, the bank must have an allowed unsecured claim to get any payment from the trustee].

The only assets the trustee can come after are your non-exempt assets that are not already encumbered by a lien, if any. The trustee will decide whether to take your non-exempt assets based on whether they will sell for enough to make it worth the trouble. The decision will have nothing to do with whether there is a deficiency on your mortgage. Whatever assets the trustee takes and sells will be distributed among all creditors with allowed unsecured claims. Even if the mortgage company has an allowed unsecured claim for the deficiency, the amount of that claim will have nothing to do with what assets the trustee decides to liquidate.

I hope that helps.

[fmccarthy]

Thanks very much for your helpful reply, in spite of my lack of clarity. I did misspeak/miswrite when I mentioned "discharged assets"; what I meant was assets which might be taken by the trustee during the BK process. But, you caught my meaning in spite of that. I don't really care about the foreclosure as I am perfectly willing to surrender the house, whether as a surrendered asset and object of the BK in a 13 or, not challenging the motion for lift of the automatic stay in either. The deficiency is my issue and it looks like it will come to a fight over appraisal value of the house.

Some may say that such deficiency is the difference between the note and what the house sells for at sheriff's sale. Sometimes that process can smell a bit, similar to the banks selling bank-owned properties to favored REIT's in bulk at discount. Anyway, the BK is a plan B as I will try to negotiate with the bank for an orderly foreclosure. The whole mess is coming about because a short-sale is now a taxable event - the "forgiven debt" - because the Mortgage Debt forgiveness Relief Act was not renewed, some say as a political football. If that were not the case, the deficiency would not be an issue.