Lessons Learned After Filing For Bankruptcy Protection

1. Maybe surprisingly, one of the most aggravating developments in our ongoing foreclosure crisis relates to home mortgage loan providers' obstinate resistance to finish with a foreclosure in a prompt manner. A lot of commonly, this circumstance arises in a Chapter 7 Personal bankruptcy in which the debtor has actually figured out that it remains in his or her benefit to surrender a house. As all of us know, mention anti-deficiency laws determine whether a home loan loan provider may seek a deficiency judgment after a foreclosure. We similarly understand that a Personal bankruptcy Discharge will secure that house owner from such liability despite what the debtor's state statutes have to say concerning whether a home mortgage loan provider may seek a shortage judgment. While protection from post-foreclosure liability to the mortgage loan provider remains a powerful benefit provided by the Personal bankruptcy Discharge, a relatively brand-new source of post-bankruptcy petition liability has developed in the last number of years. One that our customers are all too frequently surprised by if we neglect to offer increasingly thorough suggestions before, during, and after the filing of a bankruptcy petition. What I am speaking about, of course, are Homeowners Association charges, and to a lesser extent, local water and trash costs. As we all must understand well, such recurring costs accumulate post-petition, and specifically due to the fact that they repeat post-petition, they constitute brand-new debt-- and as brand-new debt, the Personal bankruptcy Discharge has no impact whatsoever upon them. The typical case involves a Chapter 7 bankruptcy debtor who chooses that she or he can not possibly 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 residential or commercial property, and the loan provider has declined to provide a loan modification despite months of effort by the homeowner. The home in all likelihood won't deserve the secured amounts 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 earnings. This house needs to be surrendered. The issue, of course, is that surrender in personal bankruptcy does not relate to a timely foreclosure by the lending institution. In days past, say three and even simply 2 years back, it would. However today, home loan loan providers just do not desire the property on their books. I often envision an expert deep within the bowels of the home loan loan provider's foreclosure department taking a look at a screen showing all the bank-owned homes in a provided zip code. This would be another one, and the bank does not want another bank-owned residential or commercial property that it can not cost half the quantity it provided just four years back. We might continue about the recklessness of the bank's decision in having actually made that initial loan, but that is another short article. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's bankruptcy attorney can do to force the home mortgage loan provider to take title to the home. For this reason the problem. There are other parties involved here-- most especially, homeowners associations. HOAs have in many areas seen their monthly dues plummet as increasingly more of their members have defaulted. Their ability to gather on overdue association dues was long thought to be protected by their ability to lien the property and foreclose. Even if their lien was subordinate to a first, and even a second mortgage lien, in the days of house gratitude there was almost constantly adequate equity in real estate to make the HOA whole. However no more. Today HOAs typically have no hope of recovering overdue from the equity in a foreclosed home. So, where does this all leave the personal bankruptcy debtor who must surrender his/her property? Between the proverbial rock and a difficult place. The lender may not foreclose and take the title for months, if not a year after the bankruptcy is submitted. The HOAs charges-- in addition to water, garbage, and other community services-- continue to accumulate on a monthly basis. The debtor has typically moved along and can not lease the property. However be ensured, the owner's liability for these recurring charges are not released by the bankruptcy as they

2. occur post-petition. And he or she will remain on the hook for brand-new, recurring costs until the bank lastly takes over the title to the property. HOAs will normally take legal action against the property owner post- discharge, and they'll strongly seek lawyers' fees, interest, expenses, and whatever else they can think of to recover their losses. This can often lead to tens of countless dollars of new debt that the just recently bankrupt debtor will have no hope of discharging for another eight years, ought to she or he submit insolvency again. This issue would not arise if home loan lenders would foreclose without delay in the context of a personal bankruptcy debtor who gives up a home. We as insolvency lawyers can literally beg 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 advice, then, should we give to debtors in this circumstance? The options are few. If the debtor can hang on till the residential or commercial property actually forecloses prior to submitting personal bankruptcy, this would eliminate the problem. But such a delay is not a high-end most debtors can pay for. If this choice is not available, the debtor should either live in the home and continue to pay his or her HOA dues and local services or if the home is a second home, for example, an attempt to lease the residential or commercial property to cover these continuous costs. In the final analysis, the Personal bankruptcy Code never ever contemplated this situation. Nor did most states' statutes governing house owners' associations. A solution under the Bankruptcy Code to compel home mortgage lending institutions to take title to surrendered real property would be perfect, but offered the issues facing this Congress and its political orientation, we can comfortably say that the possibility of such a century law inc reviews legal option is beyond remote.