Chapter 7 or Chapter 13 Bankruptcy

1. Maybe remarkably, one of the most frustrating advancements in our continuous foreclosure crisis relates to home mortgage lending institutions' obstinate resistance to finish with a foreclosure in a timely manner. Most typically, this situation develops in a Chapter 7 Insolvency in which the debtor has figured out that it remains in his or her benefit to give up a house. As all of us understand, state anti-deficiency laws identify whether a mortgage lending institution might seek a shortage judgment after a foreclosure. We similarly understand that a Bankruptcy Discharge will protect that house owner from such liability despite what the debtor's state statutes need to say concerning whether a mortgage lending institution might seek a shortage judgment. While security from post-foreclosure liability to the home loan lending institution stays an effective advantage used by the Bankruptcy Discharge, a reasonably new source of post-bankruptcy petition liability has actually arisen in the last couple of years. One that our clients are all too regularly shocked by if we disregard to provide increasingly thorough guidance prior to, throughout, and after the filing of a bankruptcy petition. What I am discussing, obviously, are Homeowners Association charges, and to a lesser extent, local water and garbage costs. As we all should understand well, such repeating fees accumulate post-petition, and exactly because they repeat post-petition, they make up new debt-- and as brand-new financial obligation, the Bankruptcy Discharge has no impact whatsoever upon them. The typical case involves a Chapter 7 bankruptcy debtor who decides that he or she can not perhaps pay for to keep a home. Maybe this debtor is a year or more in arrears on the very first home loan. Possibly the debtor is today (as is common here in California) $100,000 or more undersea on the property, and the lender has declined to use a loan adjustment despite months of effort by the house owner. The home in all probability will not deserve the secured quantities owed on it for years to come. The month-to-month payment has actually adapted to an installation that is now sixty or seventy percent of the debtor's home income. This house must be surrendered. The problem, naturally, is that surrender in personal bankruptcy does not relate to a timely foreclosure by the lending institution. In days past, say 3 and even just 2 years back, it would. But today, home mortgage lenders merely don't want the home on their books. I frequently think of an expert deep within the bowels of the home loan lender's foreclosure department taking a look at a screen revealing all the bank-owned properties in a provided postal code. This would be another one, and the bank does not desire another bank-owned home that it can not sell at half the amount it lent simply four years earlier. We might go on and on about the recklessness of the bank's decision in having actually made that initial loan, but that is another post. Today the property is a hot potato, and there is nothing the debtor or the debtor's bankruptcy lawyer can do to compel the home mortgage loan provider to take title to the property. Hence the quandary. There are other parties included here-- most significantly, house owners associations. HOAs have in many areas seen their regular monthly charges drop as a growing number of of their members have actually defaulted. Their ability to collect on delinquent association dues was long thought to be secured by their ability to lien the home and foreclose. Even if their lien was subordinate to an initially, or perhaps 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 recovering past dues from the equity in a foreclosed home. So, where does this all leave the bankruptcy debtor who must surrender his/her home? Between the proverbial rock and a tough location. The lending institution might not foreclose and take the title for months, if not a year after the insolvency is filed. The HOAs charges-- along with water, garbage, and other municipal services-- continue to accumulate on a month-to-month basis. The debtor has actually often moved along and can not lease the residential or commercial property. But be assured, the owner's liability for these repeating charges are not released by the personal bankruptcy as they arise post-petition. And she or he will remain on the hook for brand-

2. new, repeating costs up until the bank lastly takes control of the title to the home. HOAs will generally take legal action against the property owner post-discharge, and they'll aggressively seek attorneys' charges, interest, expenses, and whatever else they can consider to recoup their losses. This can in some cases cause 10s of thousands of dollars of brand-new debt that the recently insolvent debtor will have no hope of releasing for another eight years, must he or she file personal bankruptcy once again. This problem would not develop if home loan loan providers would foreclose quickly in the context of a personal bankruptcy debtor who surrenders a home. We as bankruptcy attorneys can actually plead that loan provider to foreclose already-- or, even better, accept a deed-in-lieu of foreclosure, however to no avail. They just don't desire the property. What guidance, then, should we give to debtors in this scenario? The options are few. If the debtor can hang on up until the property in fact forecloses prior to filing insolvency, this would get rid of the issue. However such a delay is not a luxury most debtors can century law firm jacksonville florida manage. If this option is not offered, the debtor must either live in the home and continue to pay his or her HOA fees and local services or if the residential or commercial property is a second house, for instance, an attempt to rent the home to cover these continuous expenses. In the final analysis, the Bankruptcy Code never ever considered this situation. Nor did most states' statutes governing homeowners' associations. A remedy under the Bankruptcy Code to oblige home mortgage loan providers to take title to surrendered real estate would be perfect, however provided the concerns facing this Congress and its political orientation, we can comfortably state that the possibility of such a legislative solution is beyond remote.