Sub2...seller claimed bankruptcy. What happen?

Hi all.

I came across the situation which I don’t understand how to deal with. This is not the deal I am dealing with; however, I would like to know the answer.

Here is the situation.

The owner of the house (mother) recorded deed to her son. The son lives in the house and make payments for the mortgage. (it is technically sub 2). So legally the son is the owner of the house and mother is responsible for the mortgage.

The mother had financial problem and claimed bankruptcy recently. (lawyer hasn’t filed yet)

My question is when she claims bankruptcy, is she still responsible for the mortgage or mortgage company will forclose the house? Or since she doesn’t own the house, there is nothing they (mortgage company) can do?

I know the son was behind payments for the mortgage but mother helped him. So it’s current now.

Thank you for your help!

I’m not 100% sure, but I dont think that the mother is still responsible for the mortgage because she deeded the house to her son. But the mortgage might still be under her name, if it is, then I would think she is responsible.

Good Luck!!


I’m the same as beaver, not too sure but i thnk she still is responsible, but i believe she dosnt have to claim the mortgage in the filing… NOT 100% sure on that but you should look into the state laws…


Thank you for your reply.

I know the fact that the mortgage is still her name.
She was going to add her son as a co-signer. But whatever the reason, she didn’t. So she is the only one who signed the contract.

So whoever pays the mortgate (son or mother), the bank only go after her.

I wasn’t sure if the mortgate payment will be dismissed (sorry I don’t know the correct law terminology) like student loan. (when you claim bankruptcy, you are still responsibility to pay off your student loan)

I will check the state law.

thank you for your help.

Howdy Amanda, Money and Beaver:

The loan is in Mothers name and she is responsible. Bankruptcy is Federal law and not state law also. If Mother files she has to include the debt as a liability in the case. If it is a Chapter 7 case she can give the house to the trustee and have them sell it. In a Chapter 13 case she can set up a plan to bring the loan current and let her son keep the house. The mortgage company may file a motion to have the house dismissed from the case and allow them to foreclose in both cases. They usually get their wish if there is no equity in the property.
I have always said not to file BK unless you have something that you want to keep and have equity in it. If you have nothing to lose why bother with all the court dates and mess up your credit even worse than foreclosure.

LOL guys and gals Hope this helps some

Thank you Ted.

If Mother files she has to include the debt as a liability in the case. If it is a Chapter 7 case she can give the house to the trustee and have them sell it. In a Chapter 13 case she can set up a plan to bring the loan current and let her son keep the house.

I don’t understand why she can give the house to the trustee. Let’s say, she claimed Ch7. The house is son’s name and legally, son is the owner. So although she is responsible for the mortgage, she doesn’t own the house. So how can trustee take the house to resell? They own the house about 3 years, so they have some equity.

Let’s say, she claimed Ch13. The payment is current (she was behind in the past, but it’s current now) So there is nothing that moergage broker discuss. (I guess as long as payment is current, they don’t care)

The reason why she claimed bankruptcy is she has other debt such as department stores, doctor’s fee etc. She made sure the mortgage is paid on time so son can keep the house. You know mother always wants to help her kids even though she has financial problem… She claimed bankruptcy so she doesn’t have to make payments to other lenders (deptmement stores, etc…) and save the money to pay the mortgage.

So wether or not she claims bankrupty, the mortgage payments will stay her name and lender doens’t care as long as the payments are current?

Thank you


Glad to meet you.

Yes, the mortgage on the loan must be claimed since it is in her name in a bankruptcy albeit an asset or liability it is Federal Law.

The trustee will decide on whether the house should be sold to satisfy the creditors, what we don’t know is how much equity the house has in the eyes of the court, which will have a bearing on the trustee’s decision.

Here is something to look at quickly, check the Homestead Laws where the property is located, you may find that a certian amount of equtiy is exempt from the bankruptcy process this will certanly help the bankrupt.

For get at this time whose name the property is in it is the loan that counts.

John $Cash$ Locke

Hi John.
Glad to meet you, too.

Thank you for your info.

So are you saying, even though technically (legally) the son owns the house, the trustee has the right to sell the house to satisfy mother’s creditor?

That means, wether the house is mother’s name or son’s name, trustee has the right to make a decision.

I’m not sure about equity. All I know is the mother bought the house about three years ago and son recorded the deed two years ago.


Howdy Amanda:

Technically the trustee is nothing but a trustee for the court and creditors. The court decides what happens and not the trustee. If the house is current and the only trouble the Mother is in is with department stores and doctors then why file any sort of BK. They are the last reason in the world to file. Again only file to keep something and to make a new start.

The whole thing with the son owning the house can get confusing. The debt takes priority. If the loan is in default the court can declare no equity and have the house sold to satisfy the lien no matter who owns it be it the son or another investor or homeowner.

If the loan is in default the son may file also as he is the owner of the house. The bank will probably petition the court that he is in fact an illegal owner since he did not assume the loan or pay it off when he bought it and ask the court to allow them to foreclose. If there is equity the court will probably allow the son to keep the house and catch the payments up in a 13 case. In a 7 case the son will be allowed to keep the house and claim it as exempt but will have to cure the default within a certain time or the bank will have the right to foreclose.

Maybe they can both work out something with the bank if the loan is in default, some type of forbearance agreement may be reached where they add a little each month to the payment and not even file at all.

I probably confused you even more but hope it helps.


The Trustee sifts through the bankrupts information and then submits their recomendation to the court for apporval, normally the court goes along with the Trustees recommendations as the court’s case load in large. So they rely on the Trustee’s recommendations rather than add this to their already busy case load.

I have in the past met with the Trustee in a bankruptcy case and laid out facts concerning some Subject To deals I have done so that I could have it dismissed from the bankruptcy upon recommendation of the Trustee to the court as I already had title to the property.

If the Trustee feels that what he is told is within the outlines of the bankruptsy they will submit my order for court approval. So if the Trustee recommends to the court the house is to be sold and the court approves that recommendation then the house will be sold or vice versa.

John $Cash$ Locke

Howdy Cash:

Wow you are good and fast. I was going to go back and touch up my response and say the exact same thing. The last thing you want is the trustee to be against you. I have sat thru depositions and 2004 hearings and been threatened to be handcuffed by the US Marshall in court. I had not showed up for the trustee’s meetings in a Chapter 7 case and the trustee was forced to get a court order to get me to show up. We are on better terms now. It was not that I opposed his motions but just that I did not show up. I assumed the case would just be dismissed. Boy was I wrong. I sold a lot of the properties on contracts for deed and he was protecting the buyers rights even though I was in default on the mortgages. What a learning experience. I should have hired an attorney for sure with this big of a mess. Perhaps Amanda’s friends should do the same. I had to pay $900 down and pay the balance thru the 13 plan the last time I was involved in a case.

Take care


The Trustee may not be the judge as you say, but don’t tick him or her off, or a person can find out real quick how the cow ate the cabbage.

Diffinately you want this person on your side and most times they are looking to unload their case load also, so if it makes sense it is easier for them to get it off their desk.

John $Cash$ Locke