Oh oh. Does anyone know what this means?

[newbie2]

Finally heard back from my lawyer on this today. I asked him if we could amend the schedule C to include a homestead exemption if the mortgage is invalid and the trustee sells the house. His response, "No, exemptions cannot ever beat out the Trustee's rights to set aside a mortgage.". . It was nice to dream though. Part of me thinks I should ask somebody else. I kind of feel this attorney hasn't worked too hard for me.

This isn't right, and I highly suggest you make an appointment to sit down with your attorney and discuss this. No more phone calls!

If the mortgage is set aside, that means that there is no lien. No lien = instant equity. You are entitled to the exemption for that equity.

Also, go to the courts website and search the "opinions". This type of thing has cropped up before in Michigan, and if I remember correctly, the debtor has been awarded the exemption.

Good luck!

[BKAttyMI]

I have had this happen before, if the Trustee sets aside the mortgage and the lien is gone, the money will be distributed to creditors, Trustee, then the debtor. You can not amend to add the homestead exemption. There is a chance the mortgage company will just settle w/ the Trustee and keep the lien on the house. Either way, this will be at least a year in the making, possibly longer depending on litigation.

[despritfreya]

This isn't right. . . If the mortgage is set aside, that means that there is no lien. No lien = instant equity. You are entitled to the exemption for that equity.

It may not be "right" but it is what happens. The Trustee steps into the shoes of the hypothetical lien holder and the lien is preserved for the benefit of the estate (11 USC 551). It has been argued that the Trustee can only collect on the debt as though he/she was the lender. However, since the property is property of the estate, the Trustee also stands in the shoes of the debtor and can sell the asset, pay off any valid encumbrances and keep the proceeds that would have paid the avoided lien. While I do know that a homestead cannot prime the Trustee's acquisition of the unperfected lien, I am not sure that once sufficient funds are realized to pay all liens, if a debtor can claim a homestead for the excess. The problem however, is that there is no incentive for the Trustee to market and sell the property for its best price as the Trustee could care less if any money eventually makes its way back to the debtor.

Des.

[Miknan]

Bkatty, I can't amend to add the homestead exemption (even if entitled to one?). If not, this issue is a moot point. It sounds like if I had originally put one in (I didn't, the house is slightly upside down) then I would be entitled to it if the house sold for enough which is unlikely. I guess this buys me more time in the house I didn't really want. So if this isn't a foreclosure, short sale, or DIL, how will this show up on my record? Will I be elgible for a new mortgage sooner than the three years? Thank you all for all the info.

[BKAttyMI]

I do not know how this would show up on a credit report, I *think* the mortgage company would probably just stop reporting it, but there's really no telling what they would do. They could theoretically report missed payments, then once the issue is resolved, you can go back and challenge the credit report.

Once the Trustee "creates" equity, by voiding a lien, you can't go back and exempt that property. If there IS money left over at the end of it, you would be entitled to those proceeds.