Second Mortgage and BK 7

When Seller files for BK chapter 7 and the house is on Land Trust what happens to the second mortgage assuming the first is up to date and not included in the BK?



In order to do a bankruptcy in the United States of America a copy of the credit report is supplied to the court for the judges review. Unless the property was in default and deed was recorded and turned over to a 1st TD lender as "Deed in Lieu of foreclosure" or was turned over to a 2nd TD lender as "Deed in Lieu of foreclosure" every loan asset is turned back over to lender!

In a bankruptcy the 2nd TD lender has first right to bring the 1st TD lender current and take over the property! If the 2nd TD lender does not show up to court and / or can not pay to bring the 1st current and take it over, the 1st TD lender gets the property!

If the mortgage is in sellers name, the mortgage will be involved in the bankruptcy unless the loan is so new it does not show at time of filing, but I believe now the courts get a new credit report before the bankruptcy discharges which is a few months later so if it’s in the bankrupt parties name, it’s involved in the bankruptcy regardless of who is vested on title!