Will my lien survive Chap 7?

[Stace]

What is the name of your state? California, I am a creditor faced with a Chapter 7

I was scammed by a contractor and received a summary judgment for $110,000 and filed a lien for that amount on the debtor's house held in joint tenancy with his wife. He took out a $420,000 mortgage--finalized the day after the judgement was filed. He then filed BK within 6 months of taking out that mortgage. There is nothing but the mortgage and my lien on the house, but $420,000 is very close to the value of the house. I understand this "strips" my lien but I also read that liens can survive a Chap 7. I can begin adversary proceedings because there is $130,000 cash from the mortgage and he told the trustee that he gave away $30,000 to "cousins" and "spent" the remainder (within a few months). He is also dramatically under reporting his income which I can prove with my cancelled checks if given the chance. (The trustee only allowed questions about his assets at the hearing). I would prefer to allow the discharge of the judgement and keep the lien than start up another expensive lawsuit. My intent had always been to just wait until they activated the lien (they are young and I am patient). I saw a BK attorney yesterday but she did not inspire confidence...although she was sure that a discharge of the judgement wouldn't remove the lien she was unsure if the lien was valid without equity. This does not seem like a complicated issue but most of what I read about lien stripping applies to Chap 13s. So my question is:

Can my lien survive a Chap 7 if the equity has been removed from the house within 6 months of filing BK?

 

[TigerD]

For $110,000 you are justified in hiring a good attorney.

 

[Stace]

Thanks for the response. Not that this implies quality, but she is a $380/hr attny I was referred to ...and first impressions are not always reliable. Regardless, the filing date to stay the discharge is the 16th so I do not have time for more attny shopping. She will get back to me on Monday and is calling the trustee but I thought I would ask some questions to ease my anxiety as I wait. It is lack of information that makes me nervous, not the answers I get.

The trustee made them come back a second time and asked several skeptical questions. A complete stranger came up to me and joked about how obvious the lying was but at the end the trustee said something about them receiving the discharge when they asked about it.

The worst part of this is that this guy gets his contractor's license back just by filing BK which makes the Contractor Licensing board rather meaningless. I have not run into one person who knows that when they check to see if a contractor is licensed.

 

[Chien]

I completely agree with DC, and it would seem to me that, since a discharge obviates a license suspension, that would be a pretty good reason, in and of itself, to intiate an adversarial proceeding. If the discharge doesn't take place within 6 months of notice from the Board, he has to ge a new license. (And I agree about the Board; it can seem to be willfully impotent at the worst of times and not fulfilling its consumer protection function, but that's a rant for another time and place.)

You don't really say what "within a few months" amounts to. Is there any way of attacking these these as preference transfers?

I haven't done BK work for a long time and will have to give myself a refresher, but did she suggest why a lack of equity would invalidate an an otherwise valid lien? Just curious about the explanation.

 

[Stace]

Thank you for your response, Chien. At this point, I am planning on instituting adversarial proceedings. The more I read about liens the more problematic they sound. The attny told me that the lien was safe from BK which was a pleasant surprise but when I started questioning her about the lien being valid with no equity that is when she said she had to check on it. I have been in the legal arena long enough to know that little is as straightforward as it can seem on Google. What I have read online says that the house has to have enough value to sustain the lien or it can be stripped but I also read that liens survive a Chap 7. What I can't find is information on this particular configuration of events.

I will indeed be going after him for improper money transfers in an adversarial proceeding. He emptied out the value of the house with a mortgage in Nov 06 and filed for BK in Mar 07. The money transfers occurred within that time period. I'd also like to know how he got a mortgage with monthly payments that are more than he is claiming he makes a month. Do mortgage companies not ask for proof of income? If they do, he certainly didn't tell them he only makes $33,000 a year.

What is particularly aggravating is that the attny I used to sue him did not sue for fraud which would have allowed me to prevent discharge of my individual debt. The contractor represented himself as licensed but his license had been expired for two years. Substandard does not even begin to describe what he did. One bedroom floor sloped 1 1/2 inches from one wall to the next, he substituted cheaper items than what he bid on, etc. However, I got the judgement because of the relatively new CA law that does not let a contractor collect a cent if he is unlicensed at any time during a job. So the judgement is for what I paid him + interest.

Do you know what entity is responsible for allowing scammers to get their licenses back with BK? Is that a decision of the CCLB or part of BK code? I'd like to become active in demanding change, it is outrageous.

 

[TigerD]

You will need to bring the guy in for a 2004 exam. There you can compel all the information you want.

If your attorney won't go after him, get a new attorney -- fast. Just the threat of blocking his BK might be enough to force him to settle.

DC

 

[Stace]

I'm not making myself clear, sorry. The BK attny is willing to do whatever needs to be done. I have been after this guy for two years, I am the one who does not want to start yet another legal proceeding at $380/hr if I can avoid it by holding onto the lien instead of blocking a discharge. (I had to act as guardian for a relative with dementia who was being sued so I have been in legal tangles for many years and I am soooo looking forward to a life without lawyers and motions. )

I got rid of the first lawyer (who didn't put fraud as a cause of action in the original lawsuit) because he had a drug problem that became very evident. I then hired a very competent construction law attny who got me the summary judgement against the contractor. I am now with this BK attny. In my experience, good attnys are always very up front about the costs vs the gains and concerned that it is evaluated and understood. Although I can put this on the debtor's bill, there is always the problem of collecting. But I am willing to keep chasing this guy. The good news is that when my new attny saw the name of the judge on this case she broke into a huge smile and said I had a very good judge who hated scumbags.

Talking this out is very helpful, I appreciate it.

 

[Chien]

Do you know what entity is responsible for allowing scammers to get their licenses back with BK? Is that a decision of the CCLB or part of BK code? I'd like to become active in demanding change, it is outrageous.

It's the Board. I've seen something similar when a contractor incorporated during litigation. The ultimate judgment against what was a licensed sole proprietorship when the damage was done was valueless in terms of suspension, because the license was held by a (one-man) corporation by the time the dust settled.