Legal Question in Real Estate Law in California

You need to speak with a bankruptcy attorney. It does not seem correct that the loans were discharged in your bankruptcy and you retained the home and continued to make payments.

Many people, including Mr. White, do not understand the handling of secured debts in bankruptcy. I'm assuming you are talking about a Chapter 7 bankruptcy, since in a Chapter 13 you would have a plan that would have dealt with these mortgages and possibly "crammed down" the second. In Chapter 7, the debt is discharged, but the security interest remains unaffected. This means the lender cannot pursue payment of the debt, but they are free to foreclose. If there is equity in the property and the debtor is not making payments, the lender will file a motion for relief from stay to foreclose. If there is no equity, however, or the borrower continues to make the payments, the lender has no reason to foreclose. What is missing from the information you provide in order to give an answer to your specific question, is what is the current equity in the home. I'm guessing it is less than the total of the first and second. The key fact is whether it is upside down by more than the $40K owed on the second. If it is, then you can probably let the second go unpaid. Provided they were scheduled and noticed in the bankruptcy proceeding, they cannot go after you for the debt, and they would have no reason to foreclose on property when they would then be the one upside down owing the first. If there is equity beyond the first, however, or even if the holder of the second thinks there is, then they can and probably would foreclose if you stopped paying them.

I agree with Mr. McCormick's response, to some extent. I disagree with the portion that states the lender has to file a motion to lift the stay. If you have a discharge, the bankruptcy stay is over and the lender does not have to file a motion to lift the stay.

The second deed of trust remains a lien on the property. If you default now, the second can foreclose or can wait, to conduct a nonjudicial foreclosure sale in the future when market conditions improve, subject only to the time limits of the Marketable Record Title Act (MRTA).