Interest accruing

[despritfreya]

No. . . In no way will a Chapter 13 today (or any day) work if there is even 1 penny of equity over the amount owed to the senior lienholder. The anti modification provisions of 11 USC 1322(b)(2) forbids modifying a mortgage that is solely secured by a debtor's principal residence. And. . . attempting to change the status of the property from residence to investment in order to get around this is bankruptcy fraud.

My comment directed at Cookiemom,regarding opening the old case, relates to a post that I read on another forum.

Des.

[justbroke]

bcohen that's exactly what des suggested... filing a (new) Chapter 13 (without going into the specifics).

Specifically, if cookiemom were to try to strip the second in a Chapter 13, it's not going to work. The reason is that the value of the home is likely higher than the value of the first mortgage. For what it's worth, lien stripping does not look at all at the cost of sale (whether it's a fire sale, cost to sell, commissions, or any other cost). The value would be set by an appraisal of its value without such consideration. So long as $1 of equity exists on the junior lien, there is nothing you could do because lien stripping would be unavailable in a Chapter 13.

Maybe the local bankruptcy district has a Chapter 13 loan modification program. It would be interesting when it comes to a second mortgage.

[bcohen]

cookiemomIf, at the time you filed bankruptcy, there was absolutely no equity in the home after consideration of the first mortgage and you wanted to get rid of the 2nd, you needed to file Chapter 13. (Please don't ask about reopening the 7 and converting to a 13 - again, no legal basis to do so coming on 14 years after the fact.)

Obviously, attempting to reopen the 14 year old Chapter 7 is a non-starter. However, if the current creditor is demanding an amount which is not supported by the value of the house today--taking into account what it would realistically sell for at auction, plus the cost of foreclosure, she can file a new Chapter 13 bankruptcy and let the judge decide how much equity exists and what the terms of repayment shall be. Depending on how aggressive the creditor is behaving, filing for Chapter 13 bankruptcy could be a good option to save the house and pay as little as possible to clear this debt.

[despritfreya]

cookiemom

No one here is judging you and we all support your efforts if those efforts have a legal basis. The problem is a Chapter 7 was never, ever, the type of bankruptcy that would impact a residential mortgage. That is not what Chapter 7 is for. If, at the time you filed bankruptcy, there was absolutely no equity in the home after consideration of the first mortgage and you wanted to get rid of the 2nd, you needed to file Chapter 13. (Please don't ask about reopening the 7 and converting to a 13 - again, no legal basis to do so coming on 14 years after the fact.)

Outside of the context of a properly filed bankruptcy with proper "facts" I see no legal basis to wipe out the second lien. I am always open to proper legal argument telling me that I am wrong so, what does the attorney you hired say?

Des.

[justbroke]

I think I can say this for everyone, that we understand completely. The issue is that bankruptcy doesn't operate the way that we wished it would operate. The purpose of bankruptcy is not to provide a windfall or a "head start" to debtors, but to provide them a reasonably fresh start. The rule with liens will always be the rule with liens; all liens survive bankruptcy. The downside of that rule is that when it's a property lien secured by real estate, the value of that lien can actually appreciate (grow).

I was lucky. My lender gave up on my second and without even asking, sent me a satisfaction of lien, filed it with the appropriate governmental entity, and sent me a 1099-A/C. Others that went through this in 2008-2012 either knew of the strategy or somehow learned of the strategy. By strategy I mean a strategic (or non-strategic) foreclosure in order to negotiate on the second mortgage. Back then, during the housing crisis, it was common to see a settlement for 10% of the value. There was no guarantee that one could settle the second lien, but discharging personal responsibility during the housing crisis certainly gave both parties incentive.

A smart creditor, that didn't get money from TARP, would do just what your creditor did... sit on their lien and wait. (By "smart creditor" I mean one that could ride out the housing crisis and be able to gain over time.) Some of these "smart" creditors, as I call them, are or were actually junk debt buyers (JDBs) that specifically bought this type of debt often for pennies on the dollar (less than $0.10/dollar).

I have read some rulings that the valuation of collateral can be held at petition date not current post petition date.

That's for a valuation hearing in a bankruptcy. For a refresher, valuation is either what you have on your schedules or what is determined in a valuation hearing (as of the date of the hearing, not the filing date).

Unfortunately, you cannot go back and value the collateral since your bankruptcy has closed. As despritfreya wrote, your value was established by your schedules at the time you filed (unless you had a valuation hearing to determine that value). Your case is closed and you cannot go back in time.

* TARP = Troubled Asset Relief Program created to ease the housing crisis burden by buying "toxic" mortgage securities from the market.

[cookiemom]

Just thinking out loud...I don't the lay of the land. I just feel that what they are attempting to do is terrible. I'm not trying to get anything free or cheat the system. I'm hard working Mom that everything I have I worked for. I'm not rich, but I'm finally comfortable. What they are taking or attempting is a LOT of $. The value of house is not just based on the market, its also based off of what I've paid down on the 1st and updates I've done. I have read some rulings that the valuation of collateral can be held at petition date not current post petition date.

[justbroke]

Can a bk7 case be reopened to adjust the collateral value that is listed on Petition (July 2008) to submit the actual appraisal value conducted(may 2008) which would then place 2nd mortgage wholly unsecured allowing to strip off lien completely since bk7 was prior to 2015.

Just adding that I think this is a non-starter. I don't think any court would allow you to reopen a bankruptcy case to adjust what you placed on the schedules, other than maybe adding a missed creditor.

(Even with a missed creditor, most jurisdictions say that the Chapter 7 discharged all debt that arose prior to the filing of the case, so re-opening to add is moot. There is an exception when it is an asset case, but that still doesn't get the case re-opened as the non-scheduled debt would be simply non-dischargeable anyhow since the creditor didn't receive the benefit of a distribution.)

[despritfreya]

Can a bk7 case be reopened to adjust the collateral value that is listed on Petition (July 2008) to submit the actual appraisal value conducted(may 2008) which would then place 2nd mortgage wholly unsecured allowing to strip off lien completely since bk7 was prior to 2015.

You can try but you will not succeed.

I am sure that you know that in 2015, the USSC held that debtors in Chapter 7 bankruptcies cannot void or “strip off” wholly unsecured junior mortgages. (See Bank of America, N.A. v. Caulkett, 575 U.S. 790 (2015).) Unless a debtor was in the 11th Circuit, Caulkett had little impact, since most Circuits, including the 6th, previously held that mortgage strip-offs in chapter 7 were not possible, based on Dewsnup v. Timm, 502 U.S. 410 (1992).

Michigan is in the 6th circuit so here is your answer which confirms the comment above:

In re Talbert, 344 F.3d 555 (6th Cir. 2003)

This bankruptcy appeal presents purely a legal question that has split the bankruptcy and federal district courts, namely, whether a debtor who has filed for Chapter 7 bankruptcy may avoid a valueless lien under § 506(d) of the Bankruptcy Code, 11 U.S.C. § 506(d). Because the Supreme Court's reasoning in Dewsnup v. Timm, 502 U.S. 410 (1992), applies with equal force and logic to the issue at hand, we hold that a Chapter 7 debtor may not use § 506 to "strip off" an allowed junior lien where the senior lien exceeds the fair market value of the real property in question.

Des.

[cookiemom]

Can a bk7 case be reopened to adjust the collateral value that is listed on Petition (July 2008) to submit the actual appraisal value conducted(may 2008) which would then place 2nd mortgage wholly unsecured allowing to strip off lien completely since bk7 was prior to 2015.

[justbroke]

flashoflight just to clarify what you wrote... it stops the lender from suing the debtor "in personam" (personally). It doesn't stop the lender from foreclosing to recover their money.

I do not like the non-judicial States where a Deed of Trust is issued. I had one in North Carolina and the foreclosures in a non-judicial State can be done quickly! In Florida, a judicial State with Deed of Mortgage, it can take years to foreclose (if challenged).

[flashoflight]

Michigan is a non-judicial state. The statue of limitations (and the ch7) bars the lender from suing you. But the non-judicial foreclosure can still proceed. In California, the lender can wait 60 years after the record date of the Deed of Trust. Unless you have a viable case challenging the verbiage in the Deed of Trust or the NOD/NOS was done improperly, or that the current lender isn't the lender, you won't be able to stop the foreclosure with a lawsuit.

[justbroke]

Would the SOL apply to the accruing interest at least (forcing them to legally reduce the obligation a little bit)?

There are some interesting cases in Florida related to mortgages and the SOL. One of which is that each payment missed created a 5-year SOL individually. So a missed payment on 1/1/2010 would be barred after 12/31/2014, but the 2/1/2010 payment would be barred after 1/31/2015 and so on and so fourth.

If your State is anything like Florida, the SOL defense could be a non-starter. In Florida, the entire landscape installments payments in a mortgage and the statute of limitations was completely changed by a decision in 2018. Florida is now pretty consistent that "a lender is entitled to recover all outstanding payments upon maturity or acceleration, even those that came due more than five years earlier."

It completely caught me off guard as I was trying an SOL defense at that time. That ruling means that they can collect even what appears to be time-barred debt.

You would have to check to see how your State handles this.

Reference Grant v Citizens Bank (Florida) https://www.jdsupra.com/legalnews/gr...florida-30965/

[flashoflight]

cookiemom
Mine was a chapter 13, so I ended up on a payment plan that consisted of paying mortgage arrears over 5 years on the 1st and 2nd which meant the credit cards got paid nearly nothing (13 as a backdoor chapter 7). Both mortgages were going to foreclose on the same day if I didn't file BK. After the BK filing, it seemed like the 1st was willing to talk in good faith about a loan mod while the 2nd was completely uninterested. I could have forced the loan mod app on the 2nd via the court's LMM program, but the high cost and uncertain probability of success made me give up on that in favor of a refinance. There was sufficient equity to foreclose and pay off the 2nd at 100%. Because the HELOC was going to require a much higher payment in the 4th year of BK, I needed to get rid of it. So I refi'ed both mortgages to a single new mortgage at 2.25% 15 year with no bankruptcy baggage like not having online access. I was current on my house for the first time in years. The NOD and NOS were no longer valid. The 15 year instead of a 20/25/30 was to avoid giving the unsecured creditors an increased dividend. The final monthly mortgage payment was similar to the monthly trustee payment (mortgage arrears) + monthly 1st + monthly interest only 2nd. Without rates going down so much last year, refi would not be possible since the new mortgage has to pay down principal unlike the first 10 years interest only of a HELOC. Most of the lender's legal fees from the foreclosure and the bankruptcy had to be repaid on both mortgages, but around $1k in late fees magically disappeared during a mortgage servicer transfer. I'm not one to complain about a gift.

[cookiemom]

flashoflight what ended up happening. What was your resolution

[flashoflight]

I am actually surprised that they need you to tell them this information, as I would assume they could obtain it directly from county records and your credit reports.

Actually no. I've been through this too, and there are a lot of junk fees not included in the credit report and the NOD so the credit report is often wrong by quite a bit. The junk fees will be in the NOS, but the foreclosure is for the 2nd lien and not the 1st. The OP needs to order the 1st mortgage payoff, agree to pay the junk fee of $25 or whatever for the payoff, and forward the payoff letter to the 2nd lender. If anyone is filing BK with a property in foreclosure, your attorney will want the payoff statement from the lender or the foreclosing law firm too. The credit report amount is not good enough.