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  1. #1
    Join Date
    Mar 2010

    Default Are Junior Liens Extinguished by Chapter 7 Bankruptcy

    My question involves bankruptcy in the state of ARIZONA:

    My questions are tied together involving both bankruptcy and foreclosure in the State of Arizona:

    Would the foreclosure sale under Trustee's power of sale terminate the security interest previously held by Jr. Lien holders’ (2nd Mortgage and HOA dues?) After Foreclosure sale, no property existed that secured the interest of debts owed to Jr. Lien holders. Neither Jr. Lien holder made any requests to the Beneficiary/Trustee prior to scheduled foreclosure sale. The Beneficiary/Trustee had no obligation to those debts nor did any obligation exist under the Deed of Trust they foreclosed on.


    Would our Ch 7 discharge (7/31/09) include discharge of the Jr. Lien holder debts (2nd Mortgage and HOA dues) since they were without a security interest after the 6/30/09 foreclosure sale took place. This is assuming that those debts which are no longer secured be treated the same as other unsecured debts listed on Ch 7 petition.

    Background Info: We filed Chapter 7 due to lack of employment and received a discharge. The Ch 7 Petition listed our primary mortgage, a 2nd mortgage & an HOA lien. Using then-current FMV, we held equity of $75,000, but Deed of Trust beneficiary was able to get the Ch 7 Stay lifted and processed the foreclosure -- selling our home at auction on 6/30/09 for $68K above the bid price. (An investor flipped it in 30 days & sold for $90K over price paid at auction.)

    90 days after foreclosure sale, Trustee for Beneficiary deposited with the County Treasurer $64K to be held as excess proceeds to be distributed per ARS 33-812 and gave required notice to all interested parties. Statute sets priority order for next distribution from excess proceeds to be made to the junior lien holders (2nd Mortgage and HOA) and if, excess proceeds remain after satisfying debt owing to junior lien holders, remaining excess proceeds shall be released to the Trustor (us).

    More than 180 days have passed since Trustee gave notice of excess proceeds. If the answers to my questions above confirm that the Jr. Lien holder debt has been extinguished and/or discharged, then we (Trustor) are free to file our Application for Release of Excess Proceeds to Owner of Property.

    Hoping this much needed little pot-of-gold will come back to us – providing that long-due fresh start!

  2. #2
    Join Date
    Sep 2005
    Behind a Desk

    Default Re: Are Junior Liens Extinguished by Chapter 7 Bankruptcy

    Chapter 7 bankruptcies do not extinguish liens on property, if those liens were secured prior to the bankruptcy.

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