Expert: Mark J. Markus- California Bankruptcy Attorney - 8/29/2011

Question
My Dad's finances have gotten completely away from him and the situation is complicated by the fact that he is not entirely aware or forthcoming about the exact details of his situation.
As I understand it he has a second mortgage out on his modest property in LA on which the first mortgage has been paid off. He has not been paying the bank for several months now and they are threatening to take the house as a result. I believe the amount he owes (~$68,000) is probably somewhat more than the current value of the property. If it is a second is he responsible for the remaining amount of the loan after they take and sell the property? If they take the home what happens between then and the result of the sale since they sale value is unknown? If selling it would get a higher amount than then seizure sale is that a viable option and would it be a short sale? He has a moderate but steady pension - is bankruptcy a viable option and would that discharge the debt?

Answer
The facts are a little strange, but if the first mortgage has been paid off, then the second mortgage is no longer a second mortgage.  In any event, as far as whether he would be liable for any deficiency on the mortgage after sale of the property, that depends on the laws of the state in which it is located.  You say the property is in "LA".  I don't know if that means Los Angeles or Louisiana.  In California, he could be liable for any deficiency or it could become a tax liability to him for forgiveness of debt.   However, there are several laws in effect right now which MAY protect him from any such deficiency.   He should consult with a real estate attorney about that.

A short sale would be his best option if he can get the mortgage holder to agree.   Bankruptcy is also an option to deal with any deficiency, but it would be best to file any bankruptcy case before a foreclosure or other sale of the property.   There's not way to tell which chapter of bankruptcy he would be eligible for without going through a comprehensive consultation.

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/
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