How to deal with 2nd Loan after a BK

I am taking a new short sale listing where there is a 1st and 2nd. However, the seller already went through bankruptcy, so how is that going to affect the 2nd as far as negotiations are concerned? Would they still be eligible for any proceeds or are they pretty much out of the deal all together now because of the BK? Also, it will be a HAFA deal so I'm not sure if that complicates things even more or what? Thanks in advance for any help here..

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Permalink Reply by Rebekah Gamble on March 19, 2012 at 1:48pm

Hi, Pat.  To my understanding Ch.7 does not remove lien from property, but removes debt from personal liability.  The lien is attached to property and must be dealt with before title changes hands.  Per HAFA guidelines, individuals can still be considered for short sale whether in ch. 7 or ch. 13.  If bk is not discharged/dismissed before sale, the short sale approval would need court approval.  Ch.13 can possibly strip an unsecured lien on property (for instance 2nd), but that will not take place until the Ch. 13 has been conpleted (on us bk website).  That might be 5 years.  If your clients think the 2nd is atomatically stripped, it is not, if the sellers don't finish all the payments.  If in an active 13, the property would be taken out from the ch.13 and/or get court approval.  If a bank rep tells you your client can't qualify for short sale because they are in bk, find the guidelines.  MHA HAFA.  It would be more accurate to say the short sale can't go through without court approval or dismissal, dicharge from court.

Permalink Reply by Tara Samney on March 19, 2012 at 4:24pm

Wow- thank you!  I was wondering the same thing.

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