Once a bankruptcy is filed by the mortgagee, what are the basic steps for a lender in pursuing the mortgaged collateral or obtaining recovery of the loan?
Upon receipt of the notice of bankruptcy, the mortgagee’s counsel should immediately file a notice of appearance with the bankruptcy court. For the mortgagee confronting a stay prior to judicial sale, at least three avenues are present for possible relief. At the forefront of options for extricating the mortgaged property from the bankruptcy is seeking relief from the automatic stay through moving the bankruptcy court. In most foreclosure scenarios, the primary ground for seeking relief from the automatic stay is the contention that the property enjoys no significant equity value above the mortgaged debt that can benefit the estate. Bankruptcy courts allow a secured creditor to lift the stay for “cause.” Establishing “cause” might include showing that the property enjoys no significant value over the mortgage debt (i.e. the debtor has no equity in the property) and that the property is not needed for a reorganization. The rationale behind lifting the stay in such a scenario is that, in
