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Perhaps surprisingly, one of the most discouraging advancements in our continuous foreclosure crisis involves home loan loan providers' obstinate resistance to execute with a foreclosure in a prompt way. Most commonly, this situation emerges in a Chapter 7 Personal bankruptcy in which the debtor has actually identified that it remains in his or her best interest to give up a home. As we all understand, mention anti-deficiency laws figure out whether a home loan loan provider might look for a shortage judgment after a foreclosure. We similarly understand that a Bankruptcy Discharge will protect that homeowner from such liability despite what the debtor's state statutes need to say worrying whether a home mortgage lending institution might look for a shortage judgment. While security from post-foreclosure liability to the mortgage loan provider stays a powerful advantage provided by the Insolvency Discharge, a reasonably 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 disregard to use increasingly extensive guidance before, during, and after the filing of a personal bankruptcy petition. What I am discussing, of course, are Homeowners Association fees, and to a lower degree, community water and trash charges. As all of us ought to know well, such repeating fees collect post-petition, and specifically because they recur post-petition, they constitute new financial obligation-- and as new financial obligation, the Insolvency Discharge has no result whatsoever upon them.

The typical case involves a Chapter 7 bankruptcy debtor who chooses that he or she can not potentially afford to keep a home. Perhaps this debtor is a year or more in arrears on the first home mortgage. Perhaps the debtor is today (as prevails here in California) $100,000 or more undersea on the residential or commercial property, and the lender has refused to provide a loan adjustment in spite of months of effort by the house owner. The home in all likelihood will not be worth the protected amounts owed on it for decades to come. The monthly payment has adjusted to an installation that is now sixty or seventy percent of the debtor's household earnings. This home needs to be given up. The issue, naturally, is that surrender in personal bankruptcy does not correspond to a prompt foreclosure by the lending institution. In days past, state three or perhaps simply 2 years back, it would. But today, home mortgage lenders merely do not desire the property on their books. I typically picture an expert deep within the bowels of the mortgage loan provider's foreclosure department looking at a screen showing all the bank-owned properties in an offered zip code. This would be another one, and the bank does not want another bank-owned property that it can not sell at half the quantity it lent simply 4 years back. We might go on and on about the recklessness of the bank's choice in having made that original loan, but that is another century law firm llc article. Today the residential or commercial property is a hot potato, and there is absolutely nothing the debtor or the debtor's personal bankruptcy attorney can do to compel the home mortgage loan provider to take title to the home. Thus the problem. There are other parties included here-- most especially, homeowners associations. HOAs have in many locations seen their month-to-month dues plummet as a growing number of of their members have


actually defaulted. Their capability to gather on overdue association fees was long believed to be secured 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 gratitude there was almost always sufficient equity in realty to make the HOA whole. But no more. Today HOAs typically have no hope of recovering unpaid from the equity in a foreclosed residential or commercial property. So, where does this all leave the insolvency debtor who must surrender his/her property? In between the proverbial rock and a tough place. The lender may not foreclose and take the title for months, if not a year after the bankruptcy is filed. The HOAs fees-- together with water, garbage, and other local services-- continue to accumulate on a monthly basis. The debtor has actually frequently moved along and can not lease the property. But be assured, the owner's liability for these recurring charges are not discharged by the personal bankruptcy as they arise post-petition. And she or he will stay on the hook for new, recurring costs until the bank finally takes over the title to the home. HOAs will normally take legal action against the house owner post-discharge, and they'll strongly look for attorneys' fees, interest, expenses, and whatever else they can think about to recoup their losses. This can in some cases lead to 10s of thousands of dollars of brand-new debt that the recently bankrupt debtor will have no hope of discharging for another eight years, need to she or he submit bankruptcy again. This problem would not emerge if home mortgage lending institutions would foreclose quickly in the context of a bankruptcy debtor who surrenders a house. We as personal bankruptcy lawyers can actually plead that lender to foreclose already-- or, even better, accept a deed-in-lieu of foreclosure, however to no avail. They just do not desire the property. What suggestions, then, should we provide to debtors in this situation? The alternatives are few. If the debtor can hold on till the property really forecloses prior to filing insolvency, this would eliminate the issue. However such a delay is not a luxury most debtors can pay for. If this alternative is not available, the debtor should either live in the residential or commercial property and continue to pay his or her HOA charges and local services or if the home is a second house, for example, an effort to rent the home to cover these continuous expenses. In the final analysis, the Insolvency Code never ever pondered this circumstance. Nor did most states' statutes governing house owners' associations. A treatment under the Bankruptcy Code to oblige home loan lending institutions to take title to gave up real estate would be perfect, but offered the issues facing this Congress and its political orientation, we can easily state that the possibility of such a legal option is beyond remote.

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