2 Mortgages. What happens to 2nd when 1st sells house?

[Asugirl]

I just had my 341 meeting last Thursday with no help from a lawyer and was really surprised how quick and painless it was. The next day I received a knock on my door and it was a realtor advising me to list with them since my house now has been listed for public auction on 12/10/07 by the 1st mortgage. I had no idea about this and confirmed with the arizona public record site, that this was true.
My question is, I did not reaffirm with the 1st EMC (owe $175,000) or 2nd HSBC (which is an equity line of credit...owe $48,000), if the 1st mortgage sells it for the amount of their loan, what will happen to the 2nd mortgage (equity line of credit)? Will I have to owe that amount? I have a car accident settlement that is coming to me by the end of this year or early next year and I want to ensure that the 2nd mortgage can not go after that money. I understand that my unsecured debt will get their portion of the settlement, but will the 2nd mortgage get it as well?
Should I try to sell the house myself for what I owe on the 1st mortgage so I don't have the foreclosure on my credit report? Houses in my area are selling for $199,000 so I hope a realtor could sell it for at least $175,000 by the 10th of December. If it does sell, will the 2nd mortgage again try to recoup their money from me?

[BassBoy]

When the home forecolses, it goes to Sheriff's Sale or Auction. ANy unpaid balance, in this case the 2nd mortgage, becomes an unsecured debt. This debt is discharged in Ch.7 and the debtor owes nothing. I'm a Ch.7'er, so I'm not sure about Ch.13 , but I think that would be rolled into the plan.

The settlement you receive will part of your BK estate, which the Trustee now has control over (if the Trustee is aware of this already), and ALL creditors will receive a payment.........so...........the 2nd mortgage company will get something because as I said, that debt becomes an unsecured debt.

[JollyGG]

I'm assuming you are a Chapter 7.

The house will sell, the fist mortage will be paid, if there is anything left the second will get it. Since you didn't reafirm they can't come after you for it.

I belive it will be listed as IIB not as a forclosure on your credit reports.

[Asugirl]

Yes I am Chapter 7 and the trustee does know about the accident. So the 2nd mortgage will get something from my settlement? Arrgghhh. Does anyone know how the dollar amount is determined?
Knowing this, I'm thinking about selling with a realtor then, so that hopefully the auction date will be extended so the house can hopefully sell for as much as possible. Compared to as little as possible with the public auction.
I'm frustrated to think that my pain and suffering is considered an asset to the court! I had planned to pay my credit cards off with the settlement but with the 2nd mortgage as well being paid, I will probably be left with nothing. Clean slate...is the only way I can look at it and hopefully it will show on my credit report that I did go through bankruptcy but the debts were paid with the settlement. Hopefully that will count for something in the eyes of the credit report gods!

[jennyn]

I thought that only the creditors that respond to a notice will get a cut of the money???

[BassBoy]

I thought that only the creditors that respond to a notice will get a cut of the money???

In a Ch.7 asset case, all creditors have a timeframe to file a proof of claim, in order to receive any funds. Now, if your creditors know that there are assets, one can assume that every creditor will file a proof of claim. They did in our case. Now, if the creditor fails to file a proof of claim, then I believe they won't get a dime.

[BassBoy]

Yes I am Chapter 7 and the trustee does know about the accident. So the 2nd mortgage will get something from my settlement? Arrgghhh. Does anyone know how the dollar amount is determined?
Knowing this, I'm thinking about selling with a realtor then, so that hopefully the auction date will be extended so the house can hopefully sell for as much as possible. Compared to as little as possible with the public auction.
I'm frustrated to think that my pain and suffering is considered an asset to the court! I had planned to pay my credit cards off with the settlement but with the 2nd mortgage as well being paid, I will probably be left with nothing. Clean slate...is the only way I can look at it and hopefully it will show on my credit report that I did go through bankruptcy but the debts were paid with the settlement. Hopefully that will count for something in the eyes of the credit report gods!

The answer to this may be more suited for some of our members experienced with this, but I'm going to take a stab at it and say, you can't just sell the house for whatever. You have to remember that the liens on the property are not released unless the mortgages are paid in full, an approved short sale is completed and/or the mortgage is foreclosed and the home sold at auction. With a short sale and Sheriff's Sale, this is when the unpaid balance becomes unsecured and then, and only then, it is discharged in the BK. I do not believe you can sell the home for the amount of the first mortgage and discharge the second in the BK.

With regards to the Sheriff's Sale (or auction), the properties will usually start of at 2/3 Fair Market Value.....let the bidding begin. There is almost always a loss to all lien holders.

Clean slate...is the only way I can look at it and hopefully it will show on my credit report that I did go through bankruptcy but the debts were paid with the settlement. Hopefully that will count for something in the eyes of the credit report gods!

Unfortunately, this is not how it will look. All of your accounts will show IIB (Included in Bankruptcy). No one will ever see that it was paid with the settlement. A Chapter 7 is a discharge of ALL one's debts, except those that are reaffirmed.

[tay666]

Yes I am Chapter 7 and the trustee does know about the accident. So the 2nd mortgage will get something from my settlement? Arrgghhh. Does anyone know how the dollar amount is determined?
Knowing this, I'm thinking about selling with a realtor then, so that hopefully the auction date will be extended so the house can hopefully sell for as much as possible. Compared to as little as possible with the public auction.

I don't think you can sell the house anyway.
The house is part of the BK estate, and the trustee has control over it. Any type of sale of assets has to be cleared with the trustee first.

[HHM]

Exactly, if you are in an active chapter 7, you can't do anything about the house without getting the trustee to "abandon" the property from the BK estate.

And BassBoy's post is right on about what has to happen.