Borrower BK 7 Discharged but not closed?

Question

I just purchased a 1st position NPL on a home in Oklahoma and found out from FCI's bankruptcy specialist that the borrower had a Chapter 7 bankruptcy in 2009 which was discharged in 2012 but not yet closed. This was not listed on the O&E report or any collateral files from the note seller.

So, what if any, are the implications for me as the new lienholder on her house? I've not yet gone over to PACER but thought I'd post this for initial thoughts.

Thanks

Bob

So, what if any, are the implications for me as the new lienholder on her house? I've not yet gone over to PACER but thought I'd post this for initial thoughts.

Thanks

Bob

Paul Choate · Answer

I'm an ok bankruptcy attorney. I assume you want to move forward with a foreclosure. This sounds like a very unusual situation which probably involves assets or a contested matter. To be safe you may need to file a motion for relief from the stay as the trustee may be claiming an interest in the subject property. You might contact the trustee to see if they have any issues or if they have abandoned this asset. Most of them are very helpful when they can be. I only represent debtors but I can refer you to some creditor attorneys if you need one.

Paul Choate · Answer

Rick H. the stay applies to the collection of the original debt against the debtor personally and never expires absent the debt falling into a nondischargeable category (taxes, child support fraud etc.). 109g are limits for repeat filers so they cant use bankruptcy to play games with mortgage holders. As with most laws, there are always exceptions!

I should clarify, generally a motion to lift stay is filed in conjunction with a motion to abandon and the purpose is to proceed under state law for the enforcement of the lien which still exists after a discharge. It does not generally lift the stay against the debtor since that is the point of filing bankruptcy. That is why you should never talk to a debtor without legal advice and even then you should check with their attorney if they have one.

Mike Hartzog · Answer

@Paul Choate

Great stuff!  That's the best legal non-advice/explanation I have seen yet BP.  Thanks for sharing.  BK is a grey area for many of us.

Rick H.

You crack me up man!  Love it when you post.  Always a perfect mix of wisdom and humor...

Bob Malecki · Answer

Thanks Pat, good to know. Ok, one more question-- the O&E file shows property taxes due which I know have to be paid weather I foreclose or get DIL. There is also:

State tax lien filed by the OK Tax Commission for $1,300

A judgement from Wells Fargo for what appears to be a credit card debt for $12K

So, if I foreclose these should get wiped since they were filed after my first position lien, but if I get DIL, will I have to deal with the WF credit card judgement? IOW, is that judgement a lien that I as new title holder from DIL will have to resolve?

Thanks

Pat L. · Answer

I just did 2 DIL's on a couple who went BK in 2009 & are now divorcing. Having them appear at my attorney's office at different times to avoid any conflict was a treat.

The searches provided clean title to proceed with the DIL & it saved me a lot of time & $$$ avoiding a drawn-out foreclosure.

The investment properties were immediately sold so everyone wins.

Bob E. · Answer

@Bob Malecki  I have run into the same issue.  Am curious to see how this turns out for you.

Rather then trying to collect the debt you would be offering to purchase their interest in the property, not sure of the implications of that.

Bob Malecki · Answer

Hi Dion, our intention is to see if the borrower will sign off on DIL or QCD. I understand that offering a mod after BK is a longshot and a minefield as well.

Thanks

Dion DePaoli · Answer

What is the point of contact?  Collection ideas should not be broached.  There is a little argument out there of Mortgagees attempting get previously discharged Borrowers into a modification and thereby creating a new promise to pay.  The counter argument there is once discharged it is always discharged and creating a new promise on a discharged debt should not be allowed. The key here is a Borrower can voluntarily continue to pay the debt.  The Mortgagee can accept those voluntary payments as normal.  However, the Mortgage should not/may not imply a requirement to pay.  Such implications could be used by the Borrower as a violation of the injunction created through the BK.  There are some situations where a Borrower's re-newed promise to pay is found unenforceable.  It is very important to note that attempting to re-establish a new promise to pay where a new security instrument and note are created can extinguish any capacity for a Mortgagee to foreclose.  That is, if a new note is found unenforceable any security instrument which secures it is also unenforceable.  Foreclosure may not be possible if that happens since the old and proper security instrument no longer exists.The moral of the story, post discharge contact should be approached with caution.   What is said and how it is said matters.  Most servicers will limit correspondence to mere account statements so as not to cross the line of the injunction.  Correspondence which 'may' be construed as harassing or misleading even if unintended can result in legal action against the Mortgagee.

Bob Malecki · Answer

Hi All, one more question on this one-- since the borrower has a discharged BK7, am I allowed to contact her via letter? I know that there are some rules about contacting borrowers with BK, any insight is appreciated.

Bob

Paul Choate · Answer

I already sent this to Bob privately but I just wanted to let everyone know for your edification-

This case was originally filed as a chapter 13 (probably to save the home in question). It was converted to a chapter 7. The mortgage company filed a motion to lift and abandon in the 7. That takes the property out of the bankruptcy and allows the mortgage holder to proceed IN REM (against the property only). The case was reopened when the trustee found a tax refund to administer. It does not reopen or change the issues for the mortgage company- it is all about the non-exempt assets. All of this explains the length of the case.

The terms TFR and NRD are just acronyms. TFR- is trustee's final report and NRD is something related to a notice requirement. They are not important on their own.

Borrower BK 7 Discharged but not closed?

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