Treatment of attorney's fees secured by a trust deed
Posted: Mon May 11, 2009 8:50 pm
Greetings All,
I have a potential client who is a family law attorney. He performed extensive services for a client of his, earning approximately $12,000. He then duly recorded a trust deed against his client's house - with his client's consent, of course - for the $12,000. Thus, the debt in question is, in theory, secured; though it may be de facto unsecured due to the abysmal real estate market.
His client recently filed Chapter 7 papers, and listed her debt to him in Schedule F: unsecured, non-priority. He would like to know what, if anything, he needs to do to preserve his interest and ultimately get paid.
My initial thoughts are:
(1) He could do nothing, since he should retain a security interest in the house after discharge - even though his client will not be personally liable for the discharged debt;
(2) He could file a 727 action alleging fraud on the Court on the part of the Debtor - she did, after all, mischaracterize the debt as unsecured when it was, in fact, secured; or
(3) He could file a motion for relief from stay as a prelude to conducting a foreclosure action - which would ultimately lead, not to an actual sale, but to his becoming a tenant in common with the Debtor (he assures me that he has done this sort of thing before, just not with a bankrupt client).
My inclination is toward the first option, but I would like to avail myself of the collective wisdom of the group. Do any of the above options make sense? Or is there some other vehicle he should use to preserve his rights? Say some sort of action to establish that his security interest is preserved after the Court grants the Debtor a discharge?
Thank you in advance for any pearls of wisdom you are willing to give me.
All the best,
Nick
Nicholas Gebelt, Ph.D., J.D.
Law Offices of Nicholas Gebelt
15150 Hornell Street
Whittier, CA 90604
Phone: 562.777.9159
FAX: 562.946.1365
Email: ngebelt@goodbye2debt.com
Web: www.goodbye2debt.com
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