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Bankruptcy Law/Chapt 7 - 2nd Mortgage Judgement Entered Anyway

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Expert: - 1/15/2009


Question
My primary mortgage was in foreclosure (non judicial) and a foreclosure sale date was set for mid Oct 2008.
My 2nd was several months late and a judicial foreclosure had begun, with a trial date for June of 2010.

Just days before the primary mortgage sale date, I filed Chapt 13.  Because I couldn't afford the payments of a Chapt 13, I converted to a no asset Chapt 7 in Nov 2008.
Both the primary and 2nd were notified by the trustee.

The primary stopped collection procedures as required.
The 2nd continued with the lawsuit and obtained a summary judgment in Dec 2008.

1) Does that violate the automatic stay? If so, what do I do?
2) If it doesn't violate the automatic stay, should I meet with them and work out a payment arrangement of some kind?
3) If their judgment is invalid, how do I get it removed (vacated)?
4) After my Chapt 7 is discharged, can I enter into an agreement with my first mortgage to new terms that I can afford without my 2nd having any say in the transaction?  

Answer
1.  Assuming the creditor did not first obtain relief from the automatic stay with the court, yes it is a violation.  You would need to bring a Motion against them for violation of the stay seeking to recover damages (if it was willful) and to "undo" the foreclosure.  You will need an experienced attorney to handle this.  The real potential problem is if they sell the property to an innocent third party, because then it's difficult, if not impossible, to get the title back (although you'd be entitled to damages).    I would have your attorney send out a VERY strongly worded letter to the creditor, AND I would immediately (if you haven't already done it) record a copy of your bankruptcy petition and notice of stay with the county recorder's office where your property is located.

2.  Answered above

3.  Answered above.

4.  I believe so, assuming you get title to your property back.  But this is really a real estate question which should be directed to a real estate attorney.

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Mark J. Markus is a Los Angeles bankruptcy attorney who has practiced exclusively bankruptcy law in California since 1991 and is rated A+ by the Better Business Bureau and is AV-rated by Martindale-Hubbell. He represents debtors, creditors, and Trustees in Chapter 7, Chapter 11, and Chapter 13 of the bankruptcy code throughout California.

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