What a Bankruptcy Lawyer Wants You to Consider Before Filing

1. Perhaps remarkably, among the most discouraging developments in our ongoing foreclosure crisis pertains to home loan lenders' obstinate resistance to execute with a foreclosure in a timely way. Most frequently, this situation develops in a Chapter 7 Insolvency in which the debtor has actually identified that it remains in his or her benefit to give up a home. As all of us know, state anti-deficiency laws determine whether a mortgage lender might look for a shortage judgment after a foreclosure. We likewise know that an Insolvency Discharge will protect that property owner from such liability no matter what the debtor's state statutes need to say worrying whether a home loan loan provider may look for a deficiency judgment. While defense from post-foreclosure liability to the mortgage loan provider stays an effective advantage offered by the Insolvency Discharge, a reasonably brand-new source of post-bankruptcy petition liability has actually occurred in the last couple of years. One that our clients are all too regularly amazed by if we overlook to provide increasingly extensive recommendations prior to, during, and after the filing of an insolvency petition. What I am talking about, obviously, are Homeowners Association charges, and to a lesser degree, municipal water and garbage fees. As we all should know well, such recurring charges build up post-petition, and specifically since they repeat post-petition, they make up brand-new financial obligation-- and as new financial obligation, the Insolvency Discharge has no impact whatsoever upon them. The typical case involves a Chapter 7 bankruptcy debtor who decides that he or she can not potentially pay for to keep a house. Perhaps this debtor is a year or more in financial obligations on the very first mortgage. Perhaps the debtor is today (as is typical here in California) $100,000 or more undersea on the residential or commercial property, and the lending institution has refused to use a loan adjustment regardless of months of effort by the homeowner. The house in all possibility will not deserve the secured amounts owed on it for decades to come. The monthly payment has adjusted to an installment that is now sixty or seventy percent of the debtor's household income. This house should be given up. The problem, naturally, is that surrender in personal bankruptcy does not relate to a timely foreclosure by the lender. In days past, state 3 or perhaps just two years back, it would. But today, home mortgage lenders simply do not desire the residential or commercial property on their books. I frequently think of an expert deep within the bowels of the home mortgage lender's foreclosure department looking at a screen showing all the bank-owned properties in an offered postal code. This would be another one, and the bank does not desire another bank- owned property that it can not cost half the quantity it lent simply four years ago. We might go on and on about the recklessness of the bank's decision in having made that initial loan, but that is another article. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's insolvency lawyer can do to compel the mortgage loan provider to take title to the home. Hence the conundrum. There are other celebrations involved here-- most significantly, homeowners associations. HOAs have in numerous areas seen their regular monthly charges drop as a growing number of of their members have actually defaulted. Their capability to gather on delinquent association dues was long believed to be protected by their ability to lien the residential or commercial property and foreclose. Even if their lien was subordinate to an initially, or perhaps a second home loan lien, in the days of house appreciation there was nearly constantly adequate equity in property to make the HOA whole. However no more. Today HOAs frequently have no hope of recuperating previous charges from equity in a foreclosed residential or commercial property.

2. So, where does this all leave the bankruptcy debtor who must surrender his/her home? In between the proverbial rock and a hard place. The lender might not foreclose and take the title for months, if not a year after the insolvency is filed. The HOAs dues-- together with water, trash, and other community services-- continue to accumulate on a month-to-month basis. The debtor has frequently moved along and can not rent the residential or commercial property. However be guaranteed, the owner's liability for these recurring fees are not discharged by the bankruptcy as they arise post-petition. And she or he will remain on the hook for brand-new, recurring fees up until the bank finally takes control of the title to the home. HOAs will typically sue the property owner post- discharge, and they'll strongly seek lawyers' fees, interest, expenses, and whatever else they can think about to recoup their losses. This can sometimes lead to 10s of countless dollars of new financial obligation that the recently insolvent debtor will have no hope of releasing for another eight years, must she or he file bankruptcy again. This problem would not develop if mortgage lenders would foreclose immediately in the context of a bankruptcy debtor who gives up a house. We as insolvency lawyers can actually beg that lender to foreclose currently-- or, even better, accept a deed-in-lieu of foreclosure, however to no obtain. They merely do not desire the home. What advice, then, should we provide to debtors in this situation? The alternatives are few. If the debtor can hold on till the residential or commercial property really forecloses previous to filing insolvency, this would get rid of the issue. But such a hold-up is not a high-end most debtors can pay for. If this choice is not available, the debtor must either live in the property and continue to pay his or her https://centurylawinc.com HOA charges and municipal services or if the residential or commercial property is a 2nd house, for example, an attempt to lease the residential or commercial property to cover these continuous costs. In the final analysis, the Insolvency Code never contemplated this situation. Nor did most states' statutes governing property owners' associations. A treatment under the Insolvency Code to oblige mortgage lenders to take title to surrendered real residential or commercial property would be ideal, but given the concerns facing this Congress and its political orientation, we can conveniently say that the possibility of such a legislative solution is beyond remote.