Unrecorded Mortgages

30 May Unrecorded Mortgages

An unrecorded mortgage is enforceable against the borrower’s home, but not if another creditor gets a lien on the property before the mortgage is recorded. Since bankruptcy trustees have the powers of a lien holder on all a debtor’s property, the unrecorded mortgage is not enforceable against the trustee.

It gets worse. The trustee can step into the shoes of the unrecorded mortgage holder, and then make that claim against the debtor’s property for the benefit of all the creditors. Ouch! This was the ruling on appeal in Riley v. Sullivan (In re Sullivan), 2008 Bankr. LEXIS 1365 (B.A.P. 1st Cir. 2008).

Well, it’s really not so terrible for the debtor. The debtor ends up owing the trustee instead of the mortgage holder, but the same repayment terms of the morgage remain. The end result is that the debtor does not benefit from the mortgage holder’s failure to record, and the debtor would not have benefited anyway without a bankruptcy filing.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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