Don't Let Bankruptcy Get You Down - Choose the Right Attorney

1. Possibly remarkably, among the most frustrating developments in our continuous foreclosure crisis involves home loan lending institutions' obstinate resistance to finish with a foreclosure in a prompt way. The majority of typically, this situation occurs in a Chapter 7 Bankruptcy in which the debtor has actually figured out that it is in his or her best interest to surrender a home. As all of us know, state anti-deficiency laws determine whether a home mortgage loan provider may seek a deficiency judgment after a foreclosure. We likewise understand that a Personal bankruptcy Discharge will protect that house owner from such liability no matter what the debtor's state statutes have to state concerning whether a home mortgage loan provider might look for a deficiency judgment. While defense from post-foreclosure liability to the home mortgage lending institution remains an effective benefit offered by the Bankruptcy Discharge, a relatively brand-new source of post-bankruptcy petition liability has actually developed in the last number of years. One that our customers are all too regularly shocked by if we neglect to offer increasingly detailed recommendations prior to, during, and after the filing of a bankruptcy petition. What I am discussing, naturally, are Homeowners Association fees, and to a lesser extent, community water and trash fees. As we all ought to know well, such recurring fees accumulate post-petition, and precisely due to the fact that they repeat post-petition, they constitute brand-new debt-- and as new debt, the Bankruptcy Discharge has no effect whatsoever upon them. The typical case involves a Chapter 7 insolvency debtor who chooses that he or she can not perhaps afford to keep a house. Perhaps this debtor is a year or more in arrears on the very first home loan. Perhaps the debtor is today (as is common here in California) $100,000 or more underwater on the property, and the lending institution has actually refused to provide a loan adjustment despite months of effort by the property owner. The home in all probability will not be worth the protected amounts owed on it for years to come. The month-to-month payment has actually gotten used to an installation that is now sixty or seventy percent of the debtor's household earnings. This house must be given up. The issue, obviously, is that surrender in insolvency does not century law inc address equate to a timely foreclosure by the lending institution. In days past, say 3 or even just 2 years back, it would. But today, mortgage lenders merely do not desire the home on their books. I frequently think of an expert deep within the bowels of the mortgage lender's foreclosure department looking at a screen revealing all the bank-owned residential or commercial properties in an offered postal code. This would be another one, and the bank does not desire another bank-owned residential or commercial property that it can not cost half the amount it lent simply 4 years ago. We could continue about the recklessness of the bank's choice in having made that original loan, but that is another short article. Today the home is a hot potato, and there is nothing the debtor or the debtor's insolvency lawyer can do to force the home mortgage lender to take title to the home. Thus the quandary. There are other parties involved here-- most notably, homeowners associations. HOAs have in

2. lots of locations seen their monthly fees drop as more and more of their members have actually defaulted. Their capability to collect 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 a first, or perhaps a second mortgage lien, in the days of house appreciation there was almost constantly enough equity in real estate to make the HOA whole. However no more. Today HOAs typically have no hope of recuperating overdue from the equity in a foreclosed home. So, where does this all leave the bankruptcy debtor who must surrender his/her home? In between the proverbial rock and a hard location. The loan provider might not foreclose and take the title for months, if not a year after the insolvency is submitted. The HOAs fees-- in addition to water, trash, and other local services-- continue to accumulate on a regular monthly basis. The debtor has actually frequently moved along and can not rent the home. But be guaranteed, the owner's liability for these repeating charges are not released by the insolvency as they develop post-petition. And she or he will stay on the hook for brand-new, repeating fees up until the bank finally takes control of the title to the home. HOAs will usually sue the homeowner post-discharge, and they'll strongly look for lawyers' costs, interest, costs, and whatever else they can think of to recover their losses. This can often cause 10s of countless dollars of new financial obligation that the just recently insolvent debtor will have no hope of discharging for another 8 years, need to he or she file insolvency again. This problem would not emerge if home mortgage loan providers would foreclose promptly in the context of an insolvency debtor who gives up a house. We as personal bankruptcy attorneys can literally beg that lender to foreclose already-- or, better yet, accept a deed-in-lieu of foreclosure, however to no avail. They merely don't want the home. What recommendations, then, should we provide to debtors in this scenario? The choices are couple of. If the debtor can hold on till the home in fact forecloses prior to filing personal bankruptcy, this would eliminate the issue. However such a hold-up is not a high-end most debtors can manage. If this choice is not readily available, the debtor should either live in the home and continue to pay his/her HOA fees and community services or if the residential or commercial property is a second house, for instance, an attempt to rent the property to cover these continuous expenses. In the last analysis, the Bankruptcy Code never contemplated this circumstance. Nor did most states' statutes governing house owners' associations. A solution under the Bankruptcy Code to compel home loan loan providers to take title to surrendered real property would be perfect, but provided the concerns facing this Congress and its political orientation, we can comfortably say that the possibility of such a legislative option is beyond remote.