Lien Avoidance - How To Maximize Exemptions When Filing Bankruptcy

1. Perhaps surprisingly, one of the most discouraging developments in our continuous foreclosure crisis has to do with home mortgage lenders' obstinate resistance to finish with a foreclosure in a timely manner. A lot of typically, this scenario century law firm pllc develops in a Chapter 7 Insolvency in which the debtor has actually figured out that it remains in his or her best interest to give up a home. As all of us understand, mention anti-deficiency laws determine whether a home loan lender might look for a deficiency judgment after a foreclosure. We similarly understand that a Bankruptcy Discharge will secure that property owner from such liability no matter what the debtor's state statutes need to state worrying whether a mortgage loan provider might seek a deficiency judgment. While security from post-foreclosure liability to the home mortgage loan provider stays an effective benefit offered by the Insolvency Discharge, a reasonably new source of post-bankruptcy petition liability has actually arisen in the last number of years. One that our customers are all too regularly amazed by if we neglect to provide significantly detailed recommendations prior to, throughout, and after the filing of a personal bankruptcy petition. What I am speaking about, naturally, are Homeowners Association dues, and to a lower extent, municipal water and garbage costs. As we all ought to know well, such recurring costs build up post-petition, and precisely due to the fact that they recur post-petition, they make up brand-new financial obligation-- and as new debt, the Personal bankruptcy Discharge has no result whatsoever upon them. The typical case includes a Chapter 7 insolvency debtor who decides that she or he can not possibly afford to keep a house. Maybe this debtor is a year or more in arrears on the first home mortgage. Maybe the debtor is today (as prevails here in California) $100,000 or more undersea on the property, and the lender has actually refused to use a loan adjustment in spite of months of effort by the property owner. The home in all probability will not deserve the secured quantities owed on it for decades to come. The month-to-month payment has actually adjusted to an installment that is now sixty or seventy percent of the debtor's home income. This house must be given up. The problem, of course, is that surrender in personal bankruptcy does not equate to a timely foreclosure by the loan provider. In days past, state 3 or perhaps simply 2 years ago, it would. But today, home loan lenders just do not want the residential or commercial property on their books. I often envision an analyst deep within the bowels of the home loan lender's foreclosure department taking a look at a screen revealing all the bank-owned homes in an offered postal code. This would be another one, and the bank does not want another bank-owned residential or commercial property that it can not sell at half the amount it lent just four years earlier. We might continue about the recklessness of the bank's choice in having actually made that initial loan, however that is another post. Today the property is a hot potato, and there is nothing the debtor or the debtor's insolvency attorney can do to force the home mortgage lending institution to take title to the residential or commercial property. For this reason the conundrum. There are other celebrations included here-- most significantly, house owners associations. HOAs have in many areas seen their month-to-month dues plummet as increasingly more of their members have defaulted. Their capability to collect on overdue association charges was long thought to be

2. protected by their ability to lien the home and foreclose. Even if their lien was subordinate to an initially, or even a second mortgage lien, in the days of house gratitude there was almost constantly sufficient equity in real estate to make the HOA whole. But no more. Today HOAs often have no hope of recuperating past dues from the equity in a foreclosed home. So, where does this all leave the insolvency debtor who must surrender his or her residential or commercial property? In between the proverbial rock and a difficult place. The loan provider might not foreclose and take the title for months, if not a year after the bankruptcy is submitted. The HOAs charges-- together with water, trash, and other community services-- continue to accrue on a regular monthly basis. The debtor has actually frequently moved along and can not rent the home. However be assured, the owner's liability for these repeating costs are not released by the insolvency as they emerge post-petition. And she or he will stay on the hook for new, repeating charges until the bank finally takes over the title to the property. HOAs will typically sue the house owner post-discharge, and they'll aggressively look for attorneys' charges, interest, costs, and whatever else they can think of to recoup their losses. This can sometimes result in tens of countless dollars of brand-new debt that the recently bankrupt debtor will have no hope of discharging for another eight years, should she or he submit personal bankruptcy again. This issue would not emerge if home mortgage lending institutions would foreclose promptly in the context of a bankruptcy debtor who gives up a home. We as bankruptcy attorneys can literally ask that lending institution to foreclose already-- or, even better, accept a deed-in-lieu of foreclosure, however to no avail. They just do not desire the property. What guidance, then, should we offer to debtors in this situation? The choices are few. If the debtor can hang on until the home in fact forecloses prior to submitting insolvency, this would eliminate the issue. But such a hold-up is not a luxury most debtors can pay for. If this choice is not available, the debtor should either reside in the property and continue to pay his/her HOA fees and community services or if the residential or commercial property is a second home, for example, an effort to lease the property to cover these ongoing expenses. In the last analysis, the Bankruptcy Code never ever considered this circumstance. Nor did most states' statutes governing house owners' associations. A remedy under the Insolvency Code to force home loan loan providers to take title to surrendered real estate would be perfect, but offered the issues facing this Congress and its political orientation, we can comfortably say that the possibility of such a legal service is beyond remote.