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How Did A New Jersey Debtor Get A “Free House” ?

As reported by Robin Miller of CBAR, a New Jersey Chapter 13 debtor was able to get a “Free House.”

UnderNew Jersey law, the debtor’s mortgage creditor was time-barred from enforcing both the note and the accelerated mortgage, under which the debtor had defaulted in 2007. As a result, the creditor’s proof of a secured claim was disallowed under Code § 502(b)(1) as unenforceable against the debtor or the debtor’s property under applicable state law. The Bankruptcy Court determined that the creditor did not have an allowed secured claim and the underlying lien was deemed void pursuant to Code § 506(a)(1) and § 506(d).

As a result, the debtor was entitled to retain the property, free of any claim by the creditor. In re Washington, 2014 WL 5714586 (Bankr. D. N.J., Nov. 5, 2014) (case no. 2:14-bk-14573; adv. proc. no. 2:14-ap-1319)