Bankruptcy chapter 7 discharge of 2nd mortgage?

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What might happen at closing the sale of my house, given the following facts?

Declared bankruptcy in early October 2005 (amid a rush of filers still looking to get in before the law changed).
Discharged in early 2006.
Listed 2 mortgages for house: First from the lender.
Second mortgage is a no payment forgiveable rehab loan from our local housing department. The loan incurs no payments and is reduced by 10% every year after 5 years in the house (completely forgiven after 15 years). This zero payment, forgiveable rehab loan was secured 7 years ago.
Didn’t reaffirm either mortgage. Stayed in the house.
Am selling the house now. Won’t sell for enough to cover both mortgages.

What happens? Can I be sued for a deficiency judgment? Will the housing department show up at closing and demand payment?

  1. Reply
    May 1, 2011 at 1:07 am

    I am assuming your are going to have a closing on this, and the closer will not close until this issue is settled. Whoever is closing this will call both companies to get pay-off’s. Both need to be released of record. You can’t stiff them, it won’t close until this is settled.

  2. Reply
    Matt E
    May 1, 2011 at 1:34 am

    If you cannot sell the house for enough to cover both mortgages, why are you selling it? You have no personal liabiltiy concerning the mortgages. You can walk away from the house and make the lenders sell the house at a loss. Actually you can choose not to make any payments until the lender decides to foreclose. After they decide to foreclose you’d still have approx 2 months in your house before you’d have to leave. You can stay in your place 4 months without making a mortgage payment (free rent). Afterwards the foreclosure cannot show up on your credit report because the debt (personal liability) was already discharged in 06. I am not a lawyer but in a similar situation. I tried to used my chapter 7 to get the lender to renegotiate my ARM. They did not renegotiate to a reasonable interest rate so they’re getting the house back (but they have to take it from me by foreclosure)

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