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Maybe surprisingly, among the most discouraging developments in our ongoing foreclosure crisis has to do with home loan loan providers' obstinate resistance to execute with a foreclosure in a prompt way. The majority of frequently, this situation occurs in a Chapter 7 Bankruptcy in which the debtor has determined that it remains in his or her best interest to surrender a home. As we all know, state anti-deficiency laws identify whether a home mortgage loan provider may look for a shortage judgment after a foreclosure. We similarly understand that a Bankruptcy Discharge will secure that house owner from such liability no matter what the debtor's state statutes need to say worrying whether a home mortgage lending institution might look for a deficiency judgment. While security from post-foreclosure liability to the home mortgage loan provider stays an effective benefit used by the Personal bankruptcy Discharge, a reasonably brand-new source of post-bankruptcy petition liability has actually developed in the last couple of years. One that our clients are all too regularly amazed by if we neglect to provide significantly thorough advice before, throughout, and after the filing of an insolvency petition. What I am discussing, obviously, are Homeowners Association fees, and to a lower extent, municipal water and trash fees. As we all need to understand well, such repeating charges accumulate post-petition, and exactly because they recur post-petition, they make up brand-new debt-- and as new debt, the Personal bankruptcy Discharge has no impact whatsoever upon them.

The typical case involves a Chapter 7 bankruptcy debtor who chooses that he or she can not possibly afford to keep a house. Perhaps this debtor is a year or more in arrears on the very first home mortgage. Perhaps the debtor is today (as prevails here in California) $100,000 or more underwater on the home, and the lending institution has refused to provide a loan modification despite months of effort by the property owner. The home in all likelihood won't deserve the secured quantities owed on it for years to come. The monthly payment has gotten used to an installation that is now sixty or seventy percent of the debtor's family earnings. This home should be surrendered. The problem, of course, is that surrender in personal bankruptcy does not equate to a prompt foreclosure by the loan provider. In days past, state 3 or perhaps simply 2 years ago, it would. But today, home loan lending institutions just do not desire the home on their books. I often imagine an expert deep within the bowels of the home loan loan provider's foreclosure department taking a look at a screen revealing all the bank-owned homes in a given zip code. This would be another one, and the bank does not want another bank-owned home that it can not cost half the amount it provided just four years earlier. We could go on and on about the recklessness of the bank's choice in having made that initial loan, but that is another article. Today the property is a hot potato, and there is nothing the debtor or the debtor's bankruptcy lawyer can do to force the mortgage lending institution to take title to the property. Hence the dilemma. There are other celebrations involved here-- most especially, property owners associations. HOAs have in numerous areas seen their month-to-month charges plunge as a growing number of Century Law


Firm yelp of their members have defaulted. Their ability to collect on overdue association dues was long believed to be protected by their capability to lien the property and foreclose. Even if their lien was subordinate to an initially, or even a second mortgage lien, in the days of home gratitude there was nearly always enough equity in realty to make the HOA whole. However no more. Today HOAs often have no hope of recovering past dues 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 place. The lending institution might not foreclose and take the title for months, if not a year after the personal bankruptcy is filed. The HOAs dues-- along with water, garbage, and other local services-- continue to accrue on a regular monthly basis. The debtor has actually typically moved along and can not rent the residential or commercial property. However be guaranteed, the owner's liability for these recurring charges are not discharged by the insolvency as they emerge post-petition. And he or she will stay on the hook for new, repeating fees up until the bank finally takes control of the title to the property. HOAs will generally sue the property owner post-discharge, and they'll aggressively look for attorneys' costs, interest, expenses, and whatever else they can think of to recover their losses. This can sometimes result in 10s of thousands of dollars of new debt that the just recently insolvent debtor will have no hope of discharging for another 8 years, must he or she file personal bankruptcy again. This issue would not occur if home mortgage loan providers would foreclose promptly in the context of a personal bankruptcy debtor who gives up a home. We as bankruptcy lawyers can literally beg that lender to foreclose currently-- or, even better, accept a deed-in-lieu of foreclosure, however to no avail. They simply do not desire the property. What guidance, then, should we offer to debtors in this circumstance? The alternatives are few. If the debtor can hold on till the property in fact forecloses prior to filing personal bankruptcy, this would eliminate the issue. However such a delay is not a luxury most debtors can manage. If this option is not available, the debtor needs to either live in the residential or commercial property and continue to pay his/her HOA fees and municipal services or if the property is a 2nd home, for example, an attempt to rent the residential or commercial property to cover these ongoing expenses. In the final analysis, the Bankruptcy Code never ever pondered this circumstance. Nor did most states' statutes governing property owners' associations. A solution under the Insolvency Code to compel home mortgage lending institutions to take title to gave up real property would be ideal, but provided the problems facing this Congress and its political orientation, we can easily state that the possibility of such a legislative option is beyond remote.

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