Modifying 1st mortgage before bankruptcy auction date-does 2nd home equity stay discharged, or is it activated?

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My daughter and son in law have gone through chapter 7 bankruptcy in Oregon. They had a 1st and a 2nd mortgage (which was a home equity loan). There is an auction date set for the sale of their home, but their first mortgage company is giving them the opportunity to ‘save’ the home through a loan modification before it goes to auction. My son-in-law has had recent employment and there is a slight chance they could stay in their home if the details are worked out. My question is this; can the 2nd mortgage (home equity-different lender) come back and lien the house? Or worse yet, foreclose even though the 2nd was discharged during bankruptcy? My daughter doesn’t want to bother with modifying the 1st if there’s a big chance of the reviving the 2nd. This is in the state of Oregon, but maybe the laws are the same in all states.

Thanks for the input!

  1. Reply
    Sandy Mandy
    February 17, 2011 at 12:35 am

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  2. Reply
    February 17, 2011 at 12:40 am

    They should ask the attorney who represented them in the bankruptcy. Usually, once that Chapter 7 is finalized and discharged, the property is liquidated and the mortgage company is not legally allowed to “refinance” the mortgage. Your daughter and her husband no longer own the house or have interest in the property- the sale is mandated through the bankruptcy court. Some states may differ but in general the major rules are the same all over. Have them talk to their attorney before they sign any papers or make any decisions that may hurt them.

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