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Can a Mortgage lender collect a Discharged debt?

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

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

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Attorney answers 9

Best Answer
Posted

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

Asker

Posted

Thanks Mr.Wade. for your answer. They only send me a Right to cure letter, by regular mail, That I thing is made by a computer and automatically send by mail, because, I receive the same letter 4 times the same day. Then I send a Proposal to settlement letter by email and by fax, and nothing until now. the date to cure will end on November 06. Witch one is the next step if they want to continued with the process? I hope that they settle in the future because the property is seriously underwater. What can I expect now from the 2nd mortgage lender if I do not cure the account? How much the bank can spend to proceed to foreclosure? You said, if the property goes up, on the contrary, the property is going down. so we can wait and see what happens? I will keep your phone number just in case. Thanks

James Wade Schwitalla

James Wade Schwitalla

Posted

If the second mortgage wants to continue the process, the next step is to continue to communicate with them. So far, it does not sound like they want to reduce the amount owed on the property. Based on what you have said is the value of the home and the balance of the of the first mortgage, I do not believe the second mortgage will foreclose at this time. The second mortgage can spend as much as they want to foreclose, but if it makes the practical decision (and if you are correct about the lack of equity for them), it will not spend any money at all to foreclose. Yes, you can wait and see. Good Luck. I will be happy to consult with you in my office when you are ready. JWS

Asker

Posted

I received a letter from the lender (Onewest Bank) stating that they have received my settlement offer letter. Now they ask me to send, to the Loss Mitigation Department a hardship letter and other documents to make an analysis and see what we can do to work together. I will not send any document, just the same Letter offering a Settlement, that I already send and see what happens . What do you think? Thanks Just a little scenario picture: Home Value: 113.000 (10/30/12) 1St Mortgage Balance: 134.000 2nd Mortgage Balance: 54.000 Thanks

Asker

Posted

Property location: Miami

James Wade Schwitalla

James Wade Schwitalla

Posted

Perhaps that is a good plan. You can then see if they repeat their request for the hardship letter and other documents. JWS

Posted

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.

Posted

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.

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Posted

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!

Posted

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.

Posted

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 obtained in this forum. Therefore this answer CANNOT BE RELIED UPON AS LEGAL ADVICE FROM THIS ATTORNEY.

Asker

Posted

That's correct. 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. That's why I send a letter and tell them to contact me, just for settlement purposes only. They now, that is not any financial advantage if they foreclose because they have to pay the foreclosure costs plus the 1st mortgage balance if they go to foreclose, 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

Lawrence Joseph Marraffino

Lawrence Joseph Marraffino

Posted

I think that is a good strategy. Go for it!

Asker

Posted

thanks

Posted

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 other important facts to consider. Also, the law is constantly undergoing change, so what may be correct today, may not be accurate tomorrow. Only a full consultation with an attorney experienced or knowledgeable in the specific legal subject matter is likely to result in the optimal course of action. My practice has entailed more than a 30 year span of many real estate issues. Find out more about me at: FloridaPropertyLitigation.com.

Rex Edward Russo

Rex Edward Russo

Posted

Oops, "their" demand. I hate it when that happens.

Posted

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.

Melanie Joy Sacks

Melanie Joy Sacks

Posted

You may want to speak with a bankruptcy attorney to discuss how a chapter 13 may help you reorganize so that you may be able to save your home.

Posted

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 legal advise but instead a general response to a general question. While Avvo is a wonderful resource, nothing can be a substitute for an in-depth consultation with an attorney in the jurisdiction in which the law is to be applied. This response shall not be deemed to create an attorney-client relationship, nor shall it create an obligation on the part of the attorney to respond to further inquiry from the questioner.

Rex Edward Russo

Rex Edward Russo

Posted

However, the 2nd can not sue on the note, because as stated, the personal obligation of the mortgagor was wiped out in a Chapter 7 BR. More likely (with or without the BR7 discharge), in my opinion, the lender will just sit back and wait, and wait, and wait for the property to be worth more and the first to get paid down, so that equity reaches the second, then they will foreclose. The only really practical applications here to consider are either to file a CH 13 to wipe the second off entire (YES! it can still be done even after the CH7). Or, as the homeowner stated, find a settlement amount the 2nd is willing to accept to give a release of their mortgage. That's going to depend a lot on whether the second is a conventional mortgage lender (and which one at that) or private. Private lenders are much harder to work with.