2nd Mortgage Trying to Foreclose

[huntingguy]

What is the name of your state? Wisconsin

I claimed bankruptcy back in 2009, discharged in 2010. I asked to keep my house which I had 2 loans on from when I bought it (80/20 loan) My lawyer had thrown my mortgages into the bankruptcy despite me signing reaffirmation agreements with both. He never filed them with the courts so both mortgages went into bankruptcy. I modified my first loan and have paid it since to date.

All of a sudden my second loan is trying to foreclose on my property. I guess 27k is owed on it. Will they be able to do this? It was discharged in my bankruptcy. I have not received anything from them since my bankruptcy. It isn't even the original company my loan was with.

Isn't there some law or statute of limitations where if payments are made for a mortgage after a discharge and can't be collected? Or something of that sort? I don't know. Just spitting out something I heard.

 

[adjusterjack]

All of a sudden my second loan is trying to foreclose on my property. I guess 27k is owed on it. Will they be able to do this? It was discharged in my bankruptcy. I have not received anything from them since my bankruptcy. It isn't even the original company my loan was with.

The lenders still had a right to the property even though the loans were discharged in bankruptcy.

Isn't there some law or statute of limitations where if payments are made for a mortgage after a discharge and can't be collected? Or something of that sort? I don't know. Just spitting out something I heard.

Yes, you might actually have a defense based on the amount of time since your bankruptcy.

See Wisconsin statute 846.01 and note the first comment under the statute section. It addresses the "laches" defense.

https://law.justia.com/codes/wisconsin/2017/chapter-846/

It also occurs to me that if you had reaffirmation agreements with both lenders and continued to make payments on both loans, that could be an additional defense. Depends on the terms and conditions of the agreements.

Foreclosure in Wisconsin is a judicial process so if you have been served with a summons and complaint then there is no "trying" to foreclose. The lender IS foreclosing and you have a limited amount of time to file an answer and raise an appropriate defense.

I suggest you get yourself a lawyer ASAP. This is not a DIY project.

 

[huntingguy]

I have not been served any court papers at all. I just recently started receiving letters from a company I have never heard of, stating how much is owed for my 2nd mortgage and that if I do not have the 27k owed they will start the process. It says I have not paid since Feb 1, 2012. I haven't paid my 2nd mortgage since 2009, possibly 2010 just before bankruptcy discharge.

I continue and have been making payments on my first mortgage forever. I just have not been making payments on my second. The company said it was discharged, stopped contacting me, stopped sending my statements, etc. I guess they transferred my mortgage to a new company in May of 2011. I have not received anything from anyone until now.

 

[Zigner]

Advise the new company that this debt was discharged in bankruptcy.

 

[Taxing Matters]

Advise the new company that this debt was discharged in bankruptcy.

That likely won't help avoid foreclosure. While personal liability for the loan was discharged, the discharge does not remove the lien from the property. The result of this is that the lender can still foreclose the lien to collect (assuming the lien is still valid after all these years, which is an issue of state law) but the lender could not go after the OP personally for any deficiency owed after the foreclosure was done.

 

[adjusterjack]

Wait. Let's get back to those reaffirmation agreements you mentioned. If you reaffirmed both loans after discharged then the second mortgage (that you haven't been paying) is still collectible.

You really need to figure out what you did back then.

 

[FlyingRon]

Let's get things straight... EVERY DEBT YOU HAVE HAS TO BE LISTED IN THE BANKRUPTCY. You lawyer did the right thing there. It doesn't matter whether you want to keep it or reaffirm it or not. That reaffirmation takes place after the discharge.

Why didn't you pay the second loan? As pointed out, they still had security on the property. In some bankruptcies when the property is upside down, the junior liens can be stripped, but from the vague description here (was this chapter 7, and was their sufficient equity to cover both?) that won't happen.

The bank isn't obliged to tell you to pay them. It's probably in their best interest to try, but it's not obligatory.

There's no statutory time limit on the foreclosure. In Wisconsin, laches has certainly been used as a defense against foreclosure. It's not cut and dry, you have to make a case that there is indeed an unreasonable delay resulting in an "unjust, unconscionable, or inequitable" result.

You'll need an attorney.

Alternatively, you can come up with the money to pay off the lender's interest.

 

[Taxing Matters]

That reaffirmation takes place after the discharge.

There are two types of reaffirmation. In language of bankruptcy, reaffirmation is specific process during the bankruptcy proceeding (and thus prior to the discharge) to reaffirm the debt that the court then approves. The bankruptcy courts provide specific forms for this. See the description of bankruptcy reaffirmation from the Bankruptcy Court for the District of Hawaii for more information on that.That is what I think the OP was talking about.

It may also be possible to revive an already discharged debt after bankruptcy, which is also often referred to as reaffirming the debt. This is something governed mostly by state law. For what should be obvious reasons, few people do this.

 

[huntingguy]

The reaffirmation was during the bankruptcy but it was never filed with the court and the mortgage company said it was null and void and my mortgage was discharged in the bankruptcy. They never tried collecting after the bankruptcy I stopped getting all correspondence from them.

The first mortgage continued with the reaffirmation agreement that was made during the bankruptcy as I had been paying it all along. It was discharged still through the bankruptcy and does not show up on my credit report.

The 2nd mortgage since 2010 has had no correspondence with me in regards to my mortgage. Since then apparently it has been sold twice I think? Sorry I did get a letter telling me that information.

There is no statute of limitations for collecting on a debt? I thought there was one in Wisconsin, 6 years or 10 years? How can someone expect to get 27k after no contact for about 9 years? There was no attempt to collect for 9 years? Would they foreclose when they are the smaller mortgage and I am current with the 1st mortgage?

 

[LdiJ]

The reaffirmation was during the bankruptcy but it was never filed with the court and the mortgage company said it was null and void and my mortgage was discharged in the bankruptcy. They never tried collecting after the bankruptcy I stopped getting all correspondence from them.

The first mortgage continued with the reaffirmation agreement that was made during the bankruptcy as I had been paying it all along. It was discharged still through the bankruptcy and does not show up on my credit report.

The 2nd mortgage since 2010 has had no correspondence with me in regards to my mortgage. Since then apparently it has been sold twice I think? Sorry I did get a letter telling me that information.

There is no statute of limitations for collecting on a debt? I thought there was one in Wisconsin, 6 years or 10 years? How can someone expect to get 27k after no contact for about 9 years? There was no attempt to collect for 9 years? Would they foreclose when they are the smaller mortgage and I am current with the 1st mortgage?

The issue is that you gave them a lien on the property when they loaned you the money, and that lien never goes away until the debt is paid. So, if you were to sell the house today, they would collect on the lien from your sales proceeds.

However, as I think someone previously suggested, you might want to run it by a local attorney.

 

[adjusterjack]

There is no statute of limitations for collecting on a debt?

They aren't trying to collect the debt. That would be illegal under the bankruptcy laws since the loan has been discharged.

The lender is, however, entitled to the property.

. I just recently started receiving letters from a company I have never heard of, stating how much is owed for my 2nd mortgage and that if I do not have the 27k owed they will start the process.

I'm guessing that the letter is illegal since it's a thinly veiled attempt to collect. It's also possible that the downstream owner of the debt doesn't know about the bankruptcy. I suggest you inform them of same, with appropriate documentation. That they actually go through with the foreclosure is doubtful because it would cost them thousands in attorney fees and, if successful, they would have to pay off the first mortgage before they got any money.

Bottom feeder collection agencies don't like to spend money. Like the Spanish Inquisition they rely on fear and surprise to get people to pay.

 

[justalayman]

Whether they will take any legal action may depend on how much you owe to the first line lender and the current value of the property. If it is worth the junior lien holder to purchase the senior lien and still profit from the property, they may consider it.

 

[adjusterjack]

Would they foreclose when they are the smaller mortgage and I am current with the 1st mortgage?

I imagine that the market value of your property has increased substantially in the past 10 years where it might cover both mortgage balances and then some, certainly making foreclosure worthwhile.

You might want to consider refinancing enough to pay off both loans. Might be easier to qualify before the house goes into foreclosure.

 

[FlyingRon]

Yep, if there's equity in the property it certainly can happen. We've foreclosed on HOA liens, paid off the taxes and the senior liens, and still come out ahead. I suspect there's equity in the property if the second still has a lien in place.

 

[huntingguy]

the equity has not come up. I owe about 220 on the house. 30 with the 2nd mortgage and 190 with the 1st mortgage.