Home equity loan Bankruptcy default!

Edwards Finance > Loans

Q. I sold a home on which I had a home equity loan. The lender must not have filed the proper paperwork because it did not show up as a lien during a title search at the time of sale. Question now is since I no longer own the property, is it now considered an unsecured debt which could be discharged through bankruptcy? Or, could they do something like file a lien against my current home (did not own my current home at the time of the loan).

A. Filed lien or not, you may have bigger troubles than the loan. It may well be a crime there to sell secured property. I can't imagine that, at closing, you didn't sign somewhere in the paperwork that the property was owned by you, free and clear. That false statement alone may bring you under attack from the buyer. Did you find that the title search missed the lien and just figured you'd take the lender's money and run? So you sold or transferred the property without notifying the lender? They may not have recorded the mortgage, but you still signed it. So your failure to notify them may be considered fraud. If fraud, it could be excluded from discharge in bankruptcy. In other words, even if you file bankruptcy, you could still owe the money. This might be considered fraud, actually. You did know about the lien, notwithstanding the fact that it didn't show up on the title search. You could have mentioned it during the closing process, but you didn't. Morerover, you used the money from the sale of your old home to buy a new home without first paying off the equity loan on the old house. I suspect this is treated like any other secure debt where the collateral is no longer in your possession.

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