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Mortgage foreclosure MD law and bankruptcy, discharged bankruptcy mortgage

Asked over 3 years ago - Reisterstown, MD

My sister and brother-in-law filed for bankruptcy within the last 3 years. Included in this was a second mortgage for which they owed $15,000.00. They have received a letter from this bank advising them that the bank is going to sell their home for the debt owed. They have there original mortgage which is current and not in arrears. Can this happen?

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Attorney answers (4)

Shelly Crocker

Reputation Level 11

Answered over 3 years ago. Bankruptcy Attorney in Seattle, WA.

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If the "second mortgage" was a consensual lien (which I would assume it is), then the obligation to pay it continues to be secured by the house. The bankruptcy generally would discharge the personal liability for the debt, but not void the security interest. I would contact the bankruptcy lawyer they used and she if she or he can help, or call the mortgage company and try to work something out. Good luck to them!

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David Leibowitz

Reputation Level 11

Answered over 3 years ago. Bankruptcy Attorney in Chicago, IL.

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Yes. Although the debt was discharged, the lien remains. It might be possible to file a chapter 13 now and "strip" the lien if it is fully unsecured. You can't get another discharge in chapter 13 at this time.

You'd need to talk with a consumer bankruptcy attorney who is expert in chapter 13 to discuss this option. There also may be defenses to the second mortgage under the Truth in Lending Act or other consumer protection statutes. However, the cost of dealing with this may be high compared to the debt. On the other hand, it's your home. So weigh the costs and benefits and act accordingly.

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Jay Stuart Fleischman

Reputation Level 9

Answered over 3 years ago. Bankruptcy Attorney in New York, NY.

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I would add to David's answer by pointing out the fact that if the second mortgage forecloses, they would need to pay off the first mortgage in total in order to do so. The first mortgage bank has the right to any money received from the sale of the property (whether your relatives sell on their own or if the property is sold at foreclosure) up to the amount due to them. Therefore, your relatives may want to speak with their first mortgage company about the possibility of refinancing the second mortgage in order to help your relatives as well as to protect the interest of the first mortgage company.

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Cliff M Blondes

Reputation Level 9

Answered over 3 years ago. Foreclosure Attorney in Rockville, MD.

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In Maryland a junior lienholder may sell the property subject to a superior lien. If structured in this fashion, the first money out does NOT got to the first trust holder under your scenario. Notwithstanding, whoever buys at the foreclosure sale subject to the first lien will have to keep the first lien current to avoid the senior lienholder from foreclosing. Furthermore, the first trust lien more than likely has a "due on sale" clause that would allow the first trust lien holder to foreclose even if kept current by the foreclosure sale purchaser, although this rarely is done.

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