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Re: Holder of 2nd TD on property in bankruptcy

Posted by Ward-CA- on July 03, 2001 at 7:13 PM

In Reply to: Holder of 2nd TD on property in bankruptcy posted by B Susel on July 02, 2001 at 10:07 PM

: I hold a 2nd TD on a California business property where the guy is filing for a chapter 13. He is trying to sell the property through a real estate agent. However, the 1st TD holder is foreclosing. Do I have any protection? There are tax leins against the property and IRS claims against the person.

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Generally second trust deed holders, such as yourself, can protect themselves from the foreclosing 1st trust deed by advancing the unpaid payments and late charges to the beneficiary of the foreclosing 1st trust deed. Then you’d start your own foreclosure and include the total of all the payments you made to the 1st, to the unpaid balance of your 2nd.

However, in this instance the property owner is currently in a Chapter 13 bankruptcy action. That now means, in order for you to start your foreclosure, you will have to obtain permission from the bankruptcy court via a “Relief From The Automatic Stay”.

So, I would stop the foreclosure of the 1st by reinstating it and then petition the Court for your Relief From Stay. Also, once you’ve cured the 1st’s foreclosure you don’t have to continue making the monthly payments on it. Sure, it will go delinquent again, but the 1st won’t be able to start another foreclosure until they also get their own Relief From Stay from the bankruptcy court.

You will get your permission to start your foreclosure before the 1st does. So yours will go to foreclosure sale ahead of the 1st, thus safeguarding your equity in the property.

The IRS tax liens are junior liens and thus will get wiped off the title of the property at the foreclosure sale of your second trust deed. The delinquent taxpayer will still owe the taxes, they just won’t be secured by the property after your foreclosure sale.



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