Can a Mortgage lender collect a Discharged debt?

Asked about 2 years ago - Miami, FL

Our BK chapter 7 case was discharged on 01/2010, Both mortgages retained and current when filled but not reaffirmed (Primary residence in Florida). Home Value as 10/09/12 , 116.000 Dollars . 1st mortgage Balance 134.000 show open on Credit report and current, 2nd mortgage Balance 54.000 show closed on Credit report and 3 month late. Can 2nd mortgage lender send a Right to Cure Default letter, by mail, on a Discharged 2nd mortgage? Can 2nd mortgage lender can Sue me for a Discharged debt? No phones call, just normal mail letters. We want to settle in the future. Thanks

Additional information

I forgot to tell that I want to keep the property. I want to try and settle with them in the future, The property is seriously underwater and the 2nd is totally underwater. The 1st mortgage is perfectly handle.That's why I send a letter to the 2nd mortgage lender and tell them to contact me, just for settlement purposes only.

They now, that is not any financial advantage if they start the foreclose process because they have to pay the foreclosure costs plus the 1st mortgage balance if they go to foreclose, that's will be more lose of money for then.

my question was because, they're not suppose to contact me to collect any debt, because it was discharge on chapter 7 bankruptcy. What do you thing about my strategy to try settle with them. Thanks

Attorney answers (9)

  1. Dorothy G Bunce

    Pro

    Contributor Level 20

    10

    Lawyers agree

    Answered . You are not understanding the distinction between the discharge, which resulted in you not having personal obligation for the debt, and the lender's right to the title to the property, which is unaffected by the discharge. Your bankruptcy discharge didn't provide you with a clean title to your real estate, and both the 1st & 2nd lenders have the right to foreclose if you don't continue to pay them, even after the bankruptcy discharge.

    Hope this perspective helps!

  2. Michael J Corbin

    Contributor Level 20

    9

    Lawyers agree

    Answered . If the debt was not reaffirmed during the bankruptcy, then it was discharged. You have no legal liability for the debt, and they can't sue you on it. But, the lender certainly can contact you because of the lien against the property, which was not eliminated with the bankruptcy, and they can foreclose on the property.

    We can be reached at 507.334.0155 (Toll Free: 888.777.5009). Our web address is: www. corbin-law-office.com.... more
  3. Melanie Joy Sacks

    Pro

    Contributor Level 7

    7

    Lawyers agree

    Answered . The lenders can sue to get the property back if you stop paying the loans but can't sue you for the debt obligation based on the discharge.

  4. Gregory Howard Wiley

    Contributor Level 16

    7

    Lawyers agree

    2

    Answered . If it is discharged, you do not owe the money. They can send these letters because the mortgage still attached to the property. If you are just giving the house up, you are not liable on the note. If you want to keep it, you must pay for it.

  5. Rex Edward Russo

    Pro

    Contributor Level 14

    6

    Lawyers agree

    Answered . What the other attorneys state is spot on. They can't legally sue you for a money judgment on a discharged debt and can only seek the property by foreclosure. There demand letter should not have made any threat upon you personally to pay. However, you also stated: "Balance 134.000 show open on Credit report and current, 2nd mortgage Balance 54.000 show closed on Credit report and 3 month late." That's wrong. Since you discharged your personal obligation on the debts, the only thing they can report to the credit bureaus is "DISCHARGED BY BANKRUPTCY, BALANCE NOW 0" or something along those lines. Best of luck - most lenders will not negotiate if there is no longer personal liability on the debtor and they can't ask or imply that they would like to get your personal liability on it again because that would get them in big trouble with the BR Court. Most likely, they will just foreclose even if you offer to give them a new promissory note since they get nervous about potential repercussions.

    The law is complicated and although the facts expressed may seem to be all that is relevant, there may be many... more
  6. Jeffrey B. Lampert

    Pro

    Contributor Level 19

    6

    Lawyers agree

    Answered . My colleagues' responses are generally correct, but for those not in Florida they may not realize that there a way for you not to pay the 2nd but still keep the house, but that depends upon what the 2nd does.

    The 2nd might just decide to sue on the note, not for foreclosure. In that event, a judgment might be entered against you but if the property is your homestead residence then a judgment lien will not attach to the property. You get to keep the property without fear of the 2nd.

    Having said that, the 2nd might decide to foreclose, maybe, but it would probably be a losing proposition. That is why many 2nd mortgage/HELOC holders won't spend the $ to foreclose, knowing they aren't going to get much, if anything, at a foreclosure sale. Instead, they sue on the note and try to collect from you from other assets you might have. A Florida judgment is enforceable to 20 years, so the 2nd might be willing to wait til your financial status improves and then seek to recover.

    I hope you found this response to be of assistance. This response shall not be considered the rendering of... more
  7. Deborah F Bowinski

    Contributor Level 17

    6

    Lawyers agree

    Answered . They cannot sue you forbthevdollars on the loan. But they certainly can begin foreclosure proceedings against the property. If you wish to keep the house then you will have to negotiate with them to either cure the arrearage or negotiate some other arrangement to settle the debt with them. They do not have to wait until you are ready - they have every right to protect their interest in the property.

  8. James Wade Schwitalla

    Contributor Level 9

    2

    Lawyers agree

    Best Answer
    chosen by asker

    Answered . The second mortgage must be careful in sending you any letter! If their letter is an attempt to collect the debt that has been discharged, you can re-open your bankruptcy case to ask the judge to make them stop. They would likely be required to pay all of your attorney fees if the judge finds that they attempted to collect from you in violation of the discharge order.

    The second mortgage cannot sue you for a discharged debt, but it can sue you to foreclose. In other words, it cannot seek money from you, but it can seek to take the property away from you.

    Since you have already stopped paying the second mortgage, I would not pay them anything more and see if they attempt to foreclose on you. If they do not sue you for foreclosure within five years of your initial default, they will not be able to foreclose on you, and you will be able to remove the second mortgage lien permanently.

    This strategy has risk, however! If the property goes up in value they may foreclose on you. If they do, you could file a chapter 13 bankruptcy to pay the accumulated arrearages.

    Good Luck.

    Call my office at 305.278.0811 if you would like to come in for a free consultation.

    JWS

  9. Lawrence Joseph Marraffino

    Pro

    Contributor Level 13

    4

    Lawyers agree

    Answered . The other lawyers seem to have not noticed that you are intent on keeping the property. They do have the right to advise you your options to "Cure" the delinquency. Their advice is correct, however you should contact them to work out some payment arrangements if you want to keep your house. If you ever go to sell your house, you will still owe that debt plus additional interest. I suggest you hire a lawyer to assist you.

    Lawrence J. Marraffino
    Bankruptcy Attorney

    This answer cannot be a substitute for legal advice which requires more information from the client than can be... more

Related Topics

Bankruptcy

Bankruptcy is a legal way for people or businesses who are no longer capable of paying back their bills to clear these debts and start over.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is a form of bankruptcy where your debts are canceled, but some of your assets are sold to pay off part of your debt.

Can't find what you're looking for? Ask a Lawyer

Get free answers from experienced attorneys.

 

Ask now

17,345 answers this week

2,337 attorneys answering

Ask a Lawyer

Get answers from top-rated lawyers.

  • It's FREE
  • It's easy
  • It's anonymous

17,345 answers this week

2,337 attorneys answering