Maybe surprisingly, among the most discouraging advancements in our continuous foreclosure crisis involves home mortgage lending institutions' obstinate resistance to finish with a foreclosure in a prompt way. Many typically, this situation occurs in a Chapter 7 Personal bankruptcy in which the debtor has actually determined that it is in his/her benefit to give up a house. As we all know, specify anti-deficiency laws determine whether a home loan loan provider may seek a shortage judgment after a foreclosure. We similarly understand that an Insolvency Discharge will safeguard that homeowner from such liability no matter what the debtor's state statutes have to say worrying whether a mortgage lending institution might seek a deficiency judgment. While defense from post-foreclosure liability to the home loan lending institution remains a powerful advantage offered by the Bankruptcy Discharge, a relatively 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 disregard to use significantly detailed recommendations before, throughout, and after the filing of a bankruptcy petition. What I am discussing, of course, are Homeowners Association dues, and to a lesser extent, community water and trash fees. As all of us should understand well, such recurring costs accumulate post-petition, and exactly due to the fact that they repeat post-petition, they make up brand-new debt-- and as brand-new financial obligation, the Insolvency Discharge has no result whatsoever upon them. The normal case involves a Chapter 7 bankruptcy debtor who decides that she or he can not perhaps manage to keep a house. Possibly this debtor is a year or more in defaults on the very first mortgage. Perhaps the debtor is today (as prevails here in California) $100,000 or more undersea on the residential or commercial property, and the loan provider has refused to provide a loan modification regardless of months of effort by the house owner. The home in all likelihood will not deserve the secured quantities owed on it for decades to come. The regular monthly payment has actually adapted to an installation that is now sixty or seventy percent of the debtor's household income. This home must be surrendered. The problem, naturally, is that surrender in bankruptcy does not correspond to a timely foreclosure by the loan provider. In days past, state 3 or even simply two years back, it would. But today, mortgage loan providers just don't want the residential or commercial property on their books. I typically envision an analyst deep within the bowels of the home mortgage lender's foreclosure department looking at a screen showing all the bank-owned properties in a provided postal 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 century law inc debt consolidation half the quantity it provided just 4 years back. We might continue about the recklessness of the bank's decision in having actually made that original loan, but that is another article. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's personal bankruptcy lawyer can do to oblige the home mortgage lender to take title to the property. Hence the quandary. There are other celebrations included here-- most especially, homeowners associations.
HOAs have in many areas seen their monthly dues plunge as more and more of their members have defaulted. Their ability to collect on overdue association dues was long thought to be secured by their capability to lien the home and foreclose. Even if their lien was subordinate to a first, or perhaps a 2nd mortgage lien, in the days of house appreciation there was almost constantly adequate equity in property to make the HOA whole. However no more. Today HOAs frequently have no hope of recuperating past fees from equity in a foreclosed residential or commercial property. So, where does this all leave the insolvency debtor who must surrender his/her home? Between the proverbial rock and a tough place. The loan provider may not foreclose and take the title for months, if not a year after the bankruptcy is submitted. The HOAs fees-- together with water, trash, and other municipal services-- continue to accumulate on a regular monthly basis. The debtor has often moved along and can not rent the property. But be assured, the owner's liability for these repeating charges are not released by the bankruptcy as they arise post- petition. And she or he will stay on the hook for brand-new, repeating charges until the bank finally takes over the title to the home. HOAs will typically take legal action against the homeowner post-discharge, and they'll strongly look for lawyers' costs, interest, expenses, and whatever else they can think of to recoup their losses. This can often lead to 10s of thousands of dollars of new financial obligation that the just recently bankrupt debtor will have no hope of discharging for another eight years, should she or he submit personal bankruptcy once again. This problem would not occur if mortgage lending institutions would foreclose immediately in the context of a personal bankruptcy debtor who gives up a house. We as bankruptcy attorneys can actually beg that loan provider to foreclose currently-- or, better yet, accept a deed-in-lieu of foreclosure, but to no obtain. They merely don't want the property. What guidance, then, should we provide to debtors in this situation? The alternatives are few. If the debtor can hold on until the residential or commercial property really forecloses previous to submitting insolvency, this would get rid of the problem. But such a hold-up is not a high-end most debtors can manage. If this choice is not offered, the debtor should either reside in the property and continue to pay his/her HOA fees and local services or if the home is a 2nd house, for instance, an effort to lease the property to cover these continuous costs. In the final analysis, the Insolvency Code never ever considered this scenario. Nor did most states' statutes governing homeowners' associations. A solution under the Insolvency Code to oblige home loan loan providers to take title to gave up genuine property would be perfect, but offered the problems facing this Congress and its political orientation, we can conveniently state that the possibility of such a legislative service is beyond remote.