Expert: Mark J. Markus- California Bankruptcy Attorney - 12/8/2008

Question
QUESTION:    I have a friend in CA who sold a small piece of undeveloped property in northern California about 10 years ago and financed it himself. The buyer (an individual,also in CA) stopped making payments over 6 months ago and has just filed bankruptcy. In general terms, how will the bankruptcy proceedings affect my friend's ability to foreclose on the property? Is it likely the court will attempt to sell the property and pay off the remaining balance of the loan? Or will my friend be able to get the property back in his name to do with as he wishes? I'm sure he'll have to hire a lawyer before this proceeds much further, but I'm hoping for some general idea of what he might expect in the resolution of this matter. Thank you for any information you can provide.

ANSWER: What chapter of bankruptcy was filed, and how much realizable equity is there in the property?

---------- FOLLOW-UP ----------

QUESTION: It is a Chapter 7 bankruptcy, and my friend is listed as a "secured creditor". The property was sold for $37,500 and the balance due on the mortgage is now $30,000. In addition to my original questions, can you also please tell us if my friend will need either to file any paperwork or to appear in any of the bankruptcy proceedings in order to protect his interests? Should he seek legal representation at this point? Thank you so much for your guidance. -Claire

Answer
Assuming your friend has a properly perfected security interest in the property, then he is protected up to the value of the property minus any senior liens.  Whether the property will be sold in the bankruptcy depends on whether there is any equity beyond payment of all secured debts.  There isn't anything he needs to do unless someone seeks to avoid your friend's lien or something like that.