Legal Question in Real Estate Law in California

First, without reviewing the loan documents, I am relying entirely upon what you have provided herein to respond. Further, there may be other, substantive claims against the note holder (now the bankruptcy court trustee) to allow you to settle the balloon payment issue. You need to consult with a real estate attorney in your area who has experience with not only reviewing and identifying any claims based on the loan and its documentation, but also has bankruptcy experience.

Your only "right" as the borrower under that loan was to make your monthly payments until July of this year when the balloon is due, then to refinance or otherwise pay off the loan. The fact that the lender (whom I pressume is also the seller) went into bankruptcy is not relevant - he has no need to advise you that he did so, nor to seek your permission. Granted, the seller might have been more willing to work with you to accomodate the fact that you cannot now refinance, he could just as easily have insisted (like the Trustee) that you pay him off, or move.

The other offer you could make to the Trustee is to deed the property back to him in return for an agreement that allows you to stay and rent the property until such time as he is able to sell it. You need representation when negotiating something like this to protect yourselves. I know you don't have money, but you need to find some way to borrow the money to retain counsel to assist you, or borrow the money to find a new place to live and just abandon the property. I wish I had a brilliant answer, but sadly this is just a really bad situation from which there is probably little chance of recovery.

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