Bankruptcy, Motion to Avoid Lien, recorded judgments and title

Michelle and I recently dealt with a client that had filed for bankruptcy (Chapter 7) in 2009, and was doing a short sale in 2012.  Our client had assumed that all her unsecured debt had been legally discharged by the bankruptcy proceeding.  Her liens (real estate mortgage and security interest for her car loan) survived.

We opened escrow and as is customary ordered the preliminary title.  On title there was an abstract of judgment recorded showing a lien of $21,000 in favor of a debt collector.  We reviewed the client’s bankruptcy discharge papers and this lien was an unsecured debt.  Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7.  Common exceptions to discharge include child support, income taxes less than 3 years old and property taxesstudent loans, and fines and restitution imposed by a court for any crimes committed by the debtor.  Spousal support is likewise not covered by a bankruptcy filing, nor are property settlements through divorce.  Our client’s unsecured debt did not fall into any of these categories.

We requested that the title company remove the lien because it was discharged through bankruptcy proceeding in 2009. The title officer argued that the bankruptcy attorney failed to file a 522F, “Motion to Avoid Lien”; and therefore the lien could not be removed from title.  The title officer sent me a few 522F she had on hand, and in fact the 522F filings all pertained to mechanics liens and property taxes.  We had no argument with these liens attaching to property; after all they pertain to the real property.

Michelle believed that the $21,000 lien was mistakenly recorded on the title to the house.  Title companies do searches on property and searches on people– there is a distinction.  The $21,000 lien was personal, and had nothing to do with the real property.  The bankruptcy discharged the lien.  Being resourceful, Michelle contacted two other title companies and presented her case.  The senior underwriter at the third title company agreed with her, and said that he could provide clear title.  Needless to say, we immediately switched title companies.

If you ever hit a snag or have a bothersome problem that needs to be addressed at the last minute in escrow, please call us.  We are quite happy to help.  As our header line reads, “We are effective at finding solutions.  Let’s talk further, (310) 925-4782.”

Mona Salem (310) 925-4782 | Mona Salem Short Sales & Real Estate Solutions

Mona Salem Short Sales & Real Estate Solutions

Mona Salem Short Sales & Real Estate Solutions

Mona Salem Short Sales & Real Estate Solutions

Mona Salem | Long Beach Short Sales

 Mona Salem | Long Beach Short Sales
Mona Salem (310) 925-4782 | Mona Salem Short Sales & Real Estate Solutions