False Hope on Lien

Lew Sichelman’s Oct. 10 article (“Scam Artists Target Homeowners Who’ve Hit Tough Times”) was very informative. In my law practice, I have observed a number of these fraudulent schemes. Your comments were on the mark.

However, you made one observation that concerned me because it might give homeowners in financial jeopardy false hope.

You state that a “completed bankruptcy case often . . . eliminates the loan entirely under the fresh start provisions of Chapter 7.”

Actually, a Chapter 7 discharge does not eliminate a voluntary, secured lien on real property. A loan secured by the real property is not avoidable. A Chapter 7 filing merely stalls a foreclosure effort until the home is sold or refinanced or the lender obtains relief from the automatic stay, whichever occurs first.

If the property has no equity available for distribution to unsecured creditors of the Chapter 7 debtor, the trustee may “abandon” the property, and it therefore reverts to the homeowner.

The Chapter 7 case may close without the lender’s seeking relief from stay, in which instance the lender can proceed with the foreclosure after the Chapter 7 proceeding terminates, provided the homeowner has not cured the loan arrearage.

A typical Chapter 7 case is closed out within six months. Therefore, if the lender does not obtain relief from stay, if the homeowner fails to cure and if the trustee has abandoned the property, the lender can then foreclose following case closure.

The homeowner has bought time (and generally has paid nothing on the loan for a significant period) but will ultimately lose the property in foreclosure.

MICHAEL KLEIN

Via e-mail

The writer is an attorney.