Legal Question in Real Estate Law in California
My adult son bought a house for 555,000 in April of 2005 that he did not qualify to buy. He put nothing down and got a 100% financing. A 30 year first with an adjustable 6.5% loan for $444,000 from Countrywide, and a 2nd trust deed for $111,000 at 12% fixed with a balloon payment in 15 years. 10 months later he was 3 months in default. We bailed him out by catching up his mortgage payments, took over payments on the house, and he quitclaimed deeded the property over to me.
The house is now in our name. After almost 4 years of paying for the house, property values have declined nearly $200,000. We now have a $443,000 first with Countrywide which is now B of A, and a $109,000 second trust deed with Litton Loan. About 10 months ago the loan was charged off by Litton and turned over to a Collection agency that is now trying to collect from my son.
Since the loan is not in my name but the deed to the property is, what can the collection agency likely do?
Does the collection agcy still have a lien on the property, or did they just purchase the debt?
Once the holder of the 2nd trust deed, Litton writes off the loan and sends it to a collection agency, does that collection agency have that same lien on the property if and when the property gets sold?
If so how can that second loan, with its lien be disposed of, or extinguished?
If my son files a bankruptcy does that extinguish that second loan and its lien?
1 Answer from Attorneys
A chapter 7 bankruptcy (generally a 3-month process once it's filed) can relieve your son of personal liability on the second trust deed. However, the lien would remain.
FYI on removing second mortgages: you might see ads suggesting you can get rid of second mortgages through bankruptcy. That is correct, but it cannot be done through a chapter 7 bankruptcy. Yet, a chapter 13 bankruptcy (which is generally a 3- or 5-year payment plan) can-- under certain conditions-- permit one to dispose of a junior lien through a so-called lien-strip motion. If the first-mortgage payoff is higher than the house's current value, then the second mortgage is no longer in essence a secured debt. Upon successful filing of a lien-strip motion, the balance on the second mortgage would be treated as unsecured dischargeable debt, just like credit card debt. Upon completion of the chapter 13, an order of discharge would issue that would wipe out the remaining balance on all unsecured debts, including the second mortgage. But, the lien-strip option is relevant to a debtor who has regular income and can afford to pay the first mortgage.
Most bankruptcy attorneys offer free consultations. Contact an attorney in your area and attend a consultation with your son.
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