My adult son bought a house for 555,000 in April of 2005 that he did not qualify to buy. He put nothing down and got a 100% financing. A 30 year first with an adjustable 6.5% loan for $444,000 from Countrywide, and a 2nd trust deed for $111,000 at 12% fixed with a balloon payment in 15 years. 10 months later he was 3 months in default. We bailed him out by catching up his mortgage payments, took over payments on the house, and he quitclaimed deeded the property over to me.
The house is now in our name. After almost 4 years of paying for the house, property values have declined nearly $200,000. We now have a $443,000 first with Countrywide which is now B of A, and a $109,000 second trust deed with Litton Loan. About 10 months ago the loan was charged off by Litton and turned over to a Collection agency that is now trying to collect from my son.

Since the loan is not in my name but the deed to the property is, what can the collection agency likely do?
Does the collection agcy still have a lien on the property, or did they just purchase the debt?
Once the holder of the 2nd trust deed, Litton writes off the loan and sends it to a collection agency, does that collection agency have that same lien on the property if and when the property gets sold?
If so how can that second loan, with its lien be disposed of, or extinguished?
If my son files a bankruptcy does that extinguish that second loan and its lien?

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Originally Posted by agalamb

Since the loan is not in my name but the deed to the property is, what can the collection agency likely do?

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Originally Posted by agalamb

Does the collection agcy still have a lien on the property, or did they just purchase the debt?

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Normally, they only purchase debt. If the mortgage was assigned to them it would have been recorded, and you can check with the local recording office and see if it was.

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Originally Posted by agalamb

Once the holder of the 2nd trust deed, Litton writes off the loan and sends it to a collection agency, does that collection agency have that same lien on the property if and when the property gets sold?

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Same answer as above.

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Originally Posted by agalamb

If so how can that second loan, with its lien be disposed of, or extinguished?

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Bankruptcy (see below), or foreclosure of the first mortgage.

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Originally Posted by agalamb

If my son files a bankruptcy does that extinguish that second loan and its lien?

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Yes, if the first mortgage is up-side down (more owed than the property is now worth). He (or perhaps you) should probably bring an adversary action (in the bankruptcy case) to get the court to specifically make that determination.

Thank you that was very helpful.

Back in 2009 I had lost my home and just about everything else I had due to being the victim of fraud. Because of the huge financial lose I took in trying to repair all the financial destruction this fraud had caused me to endure unfortunately I just could not get caught up and it caused my home to be foreclosed on. I of course had a first mortgage holder and I also had a 2nd deed of trust for a line of credit that was secured by home as well. What I did not realize or have explained to me was that the 2nd deed of trust loan had also been insured by the Lender. So it is now 4 years later and out of no where I receive a collection letter from a collection agency claiming that I owe almost $48,000.00 thousand dollars for the insurance claim the original Lender had filed on that 2nd deed of trust when the 1st mortgage holder had foreclosed on my home and the collection agency had stated that the 2nd deed of trust had been extinguished from the foreclosure and that I still owe this huge amount of money for the insurance claim that had been filed with the Lenders insurance company. Is the true? In addition the amount originally of the Line of Credit from the Lender was in the amount of $36,800.00 dollars and the collection agency is pursuing me for the amount of almost $48,000.00 thousand dollars. Can I be charged this ridiculous amount in interest legally when no one had made a single attempt to contact me previously over the entire 4 years that has already gone by without a single word from anyone when I could still be easily found since I didn't leave the country or anything, plus, I have been employed with the same employer for over 22 years so it would not have been difficult to find me long before 4 years had already gone by. Is this kind of thing legal to do to a consumer? Especially one that has already lost just about everything they ever had and I definitely do not have any $48,000.00 thousand dollars! Would it be a smart move on my behalf to just file for Chapter 7 Bankruptcy and then move on? Any help or answers you could provide me with would very much be appreciated and helpful to me. Thank You

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... the collection agency had stated that the 2nd deed of trust had been extinguished from the foreclosure and that I still owe this huge amount of money for the insurance claim that had been filed with the Lenders insurance company. Is the true?.

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Yes, you probably owe the money. While the deed of trust may have been extinguished by the foreclosure of the first mortgage, that doesn't extinguish the debt, it only extinguishes the security interest (in the house) represented by the DOT.

Filing for protection under Chapter 7 is up to you. It probably will get the debt discharged, but the collection agency very well might not be able to collect it from you anyway.