"Maybe surprisingly, one of the most frustrating advancements in our ongoing foreclosure crisis relates to home loan lenders' obstinate resistance to execute with a foreclosure in a prompt way. The majority of typically, this situation occurs in a Chapter 7 Personal bankruptcy in which the debtor has identified that it remains in his/her finest interest to surrender a home.
As we all know, mention anti-deficiency laws determine whether a home loan lending institution may look for a deficiency judgment after a foreclosure. We also know that an Insolvency Discharge will century law firm pllc protect that house owner from such liability regardless of what the debtor's state statutes have to say concerning whether a home mortgage lending institution might look for a shortage judgment.
While defense from post-foreclosure liability to the home loan lender stays a powerful benefit offered by the Insolvency Discharge, a reasonably brand-new source of post-bankruptcy petition liability has arisen in the last couple of years. One that our customers are all too regularly amazed by if we disregard to provide increasingly detailed advice prior to, throughout, and after the filing of an insolvency petition.
What I am discussing, of course, are Homeowners Association charges, and to a lower degree, local water and garbage charges. As all of us must understand well, such repeating fees accumulate post-petition, and precisely because they recur post-petition, they make up new financial obligation-- and as new financial obligation, the Bankruptcy Discharge has no effect whatsoever upon them.
The typical case includes a Chapter 7 personal bankruptcy debtor who decides that he or she can not possibly pay for to keep a home. Possibly this debtor is a year or more in financial obligations on the first home mortgage. Possibly the debtor is today (as is typical here in California) $100,000 or more underwater on the residential or commercial property, and the lending institution has declined to use a loan modification despite months of effort by the house owner. The house in all likelihood won't be worth the secured amounts owed on it for decades to come. The month-to-month payment has changed to an installation that is now sixty or seventy percent of the debtor's family income. This house should be surrendered.
The issue, of course, is that surrender in bankruptcy does not equate to a prompt foreclosure by the loan provider. In days past, state 3 or even just two years ago, it would. However today, home loan lenders just don't desire the property on their books. I frequently envision an expert deep within the bowels of the mortgage loan provider's foreclosure department looking at a screen revealing all the bank-owned homes in a given postal code. This would be another one, and the bank does not want another bank-owned property that it can not cost half the amount it lent just four years earlier. We could continue about the recklessness of the bank's choice in having actually made that initial loan, but that is another article. Today the residential or commercial property 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 property.
Hence the dilemma. There are other celebrations included here-- most especially, property owners associations. HOAs have in numerous areas seen their regular monthly dues plummet as a growing number of of their members have actually defaulted. Their ability to collect on delinquent 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 home mortgage lien, in the days of house gratitude there was nearly constantly sufficient equity in realty to make the HOA whole. However no more. Today HOAs typically have no hope of recovering past dues from 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 hard location. The loan provider may not foreclose and take the title for months, if not a year after the personal bankruptcy is http://www.thefreedictionary.com/https://www.creditkarma.com/advice/i/how-to-find-bankruptcy-lawyers/ filed. The HOAs fees-- together with water, garbage, and other local services-- continue to accrue on a monthly basis. The debtor has actually typically moved along and can not rent the home. However be ensured, the owner's liability for these recurring charges are not released by the bankruptcy as they emerge post-petition. And he or she will remain on the hook for brand-new, repeating fees until the bank lastly takes control of the title to the property. HOAs will normally sue the house owner post-discharge, and they'll strongly seek lawyers' costs, interest, expenses, and whatever else they can think of to recover their losses. This can often result in 10s of countless dollars of new debt that the recently insolvent debtor will have no hope of releasing for another eight years, need to he or she file personal bankruptcy once again.
This problem would not arise if home loan lenders would foreclose promptly in the context of an insolvency debtor who gives up a house. We as insolvency lawyers can actually plead that loan provider to foreclose already-- or, even better, accept a deed-in-lieu of foreclosure, however to no get. They just do not desire the residential or commercial property. What advice, then, should we give to debtors in this situation? The choices are few. If the debtor can hang on till the home in fact forecloses previous to filing insolvency, this would remove the problem. However such a hold-up is not a high-end most debtors can afford. If this choice is not offered, the debtor needs to either live in the residential or commercial property and continue to pay his/her HOA charges and local services or if the residential or commercial property is a second house, for instance, an effort to rent the residential or commercial property to cover these continuous costs.
In the last analysis, the Bankruptcy Code never considered this scenario. Nor did most states' statutes governing property owners' associations. A solution under the Bankruptcy Code to oblige home mortgage lending institutions to take title to surrendered real estate would be perfect, however given the issues facing this Congress and its political orientation, we can comfortably state that the possibility of such a legal solution is beyond remote."