Possibly remarkably, one of the of the most aggravating developments in our ongoing foreclosure crisis relates to mortgage lenders' obstinate resistance to perform with a foreclosure in a prompt way. Many frequently, this situation emerges in a Chapter 7 Insolvency in which the debtor has identified that it remains in his or her finest interest to give up a house.
As all of us know, mention anti-deficiency laws identify whether a mortgage lending institution may look for a deficiency judgment after a foreclosure. We also understand that an Insolvency Discharge will safeguard that property owner from such liability no matter what the debtor's state statutes need to state concerning whether a mortgage loan provider may look for a deficiency judgment.
While protection from post-foreclosure liability to the mortgage lending institution stays an effective benefit offered by the Bankruptcy Discharge, a reasonably brand-new source of post- insolvency petition liability has occurred in the last number of years. One that our customers are all too often shocked by if we overlook to use significantly detailed guidance before, throughout, and after the filing of a personal bankruptcy petition.
What I am discussing, of course, are Homeowners Association fees, and to a lower extent, municipal water and trash fees. As all of us ought to know well, such recurring fees collect post-petition, and precisely since they recur post-petition, they make up brand-new debt-- and as new debt, the Bankruptcy Discharge has no effect whatsoever upon them.
The normal case involves a Chapter 7 bankruptcy debtor who decides that she or he can not potentially manage to keep a house. Perhaps this debtor is a year or more in financial obligations on the first home loan. Possibly the debtor is today (as prevails here in California) $100,000 or more undersea on the home, and the lender has refused to provide a loan modification in spite of months of effort by the property owner. The house in all possibility won't be worth the protected quantities owed on it for years to come. The monthly payment has actually gotten used to an installation that is now sixty or seventy percent of the debtor's household income. This house should be surrendered.
The problem, of course, is that a surrender in bankruptcy does not relate to a timely foreclosure by the lending institution. In days past, state three or even just 2 years ago, it would. But today, home loan loan providers merely don't desire the property on their books. I often think of an analyst deep within the bowels of the home loan lender's foreclosure department looking at a screen revealing all the bank-owned properties in an offered zip 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 quantity it lent just four years earlier. We could continue about the recklessness of the bank's choice in having made that initial loan, but that is another post. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's personal bankruptcy attorney can do to force the home mortgage lending institution to take title to the property.
Hence the problem. There are other parties involved here-- most notably, property owners associations. HOAs have in many locations seen their monthly dues plunge as increasingly more of their members have actually defaulted. Their capability to gather on overdue association charges was long believed to be secured 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 appreciation there was nearly always adequate equity in property to make the HOA whole. However no more. Today HOAs frequently have no hope of recuperating previous dues from equity in a foreclosed property.
So, where does this all leave the bankruptcy debtor who must surrender his or her residential or commercial property? Between the proverbial rock century law inc consolidation program and a tough place. The lending institution may not foreclose and take title for months, if not a year, after the bankruptcy is filed. The HOAs dues-- along with water, garbage, and other community services-- continue to accrue on a month-to-month basis. The debtor has actually often moved along and can not lease the residential or commercial property. But be guaranteed, the owner's liability for these repeating costs are not released by the personal bankruptcy as they emerge post-petition. And he or she will stay on the hook for brand-new, recurring charges until the bank finally takes over title to the residential or commercial property. HOAs will normally take legal action against the property owner post-discharge, and they'll aggressively seek lawyers' costs, interest, expenses, and whatever else they can think about to recover their losses. This can sometimes result in 10s of thousands of dollars of brand-new financial obligation that the just recently insolvent debtor will have no hope of releasing for another eight years, ought to he or she file insolvency once again.
This problem would not occur if home loan lending institutions would foreclose promptly 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, better yet, accept a deed-in-lieu of foreclosure, however to no avail. https://www.washingtonpost.com/newssearch/?query=https://www.thebalance.com/how-to-choose-a-bankruptcy-lawyer-4144666 They simply do not want the property. What recommendations, then, should we provide to debtors in this circumstance? The choices are couple of. If the debtor can hold on until the property really forecloses previous to filing personal bankruptcy, this would get rid of the problem. However such a hold-up is not a high-end most debtors can afford. If this choice is not readily available, the debtor should either reside in the home and continue to pay his or her HOA fees and municipal services, or if the property is a second home, for instance, effort to rent the home to cover these continuous expenses.
In the final analysis, the Insolvency Code never considered this situation. Nor did most states' statutes governing house owners' associations. A solution under the Insolvency Code to force mortgage loan providers to take title to surrendered real estate would be ideal, but offered the problems facing this Congress and its political orientation, we can conveniently state that the possibility of such a legal option is beyond remote.