Maybe surprisingly, among the most aggravating developments in our ongoing foreclosure crisis relates to home loan lenders' obstinate resistance to perform with a foreclosure in a prompt way. A lot of typically, this circumstance develops in a Chapter 7 Bankruptcy in which the debtor has actually identified that it remains in his or her best interest to give up a house.

As all of us understand, mention anti-deficiency laws figure out whether a home loan lender may look for a deficiency judgment after a foreclosure. We also know that a Personal bankruptcy Discharge will safeguard that house owner from such liability regardless of what the debtor's state statutes have to state concerning whether a home mortgage lender may look for a shortage judgment.

While security from post-foreclosure liability to the home mortgage loan provider stays a powerful advantage used by the Bankruptcy Discharge, a reasonably brand-new source of post-bankruptcy petition liability has actually arisen in the last number of years. One that our customers are all too frequently amazed by if we overlook to offer increasingly detailed suggestions prior to, throughout, and after the filing of an insolvency petition.

What I am speaking about, of course, are Homeowners Association fees, and to a lesser degree, municipal water and trash fees. As we all need to understand well, such recurring fees build up post-petition, and exactly since they recur post-petition, they constitute brand-new debt-- and as brand-new financial obligation, the Insolvency Discharge has no impact whatsoever upon them.

The normal case includes a Chapter 7 insolvency debtor who chooses that he or she can not possibly manage to keep a home. Perhaps this debtor is a year or more in financial obligations on the very first home mortgage. Possibly the debtor is today (as prevails here in California) $100,000 or more undersea on the property, and the loan provider has declined to offer a loan adjustment in spite of months of effort by the homeowner. The house in all probability won't deserve the secured amounts owed on it for years to come. The regular monthly payment has actually gotten used to an installation that is now sixty or seventy percent of the debtor's family earnings. This house needs to be surrendered.

The problem, of course, is that surrender in bankruptcy does not relate to a timely foreclosure by the lending institution. In days past, say 3 or even just two years back, it would. However today, home loan lending institutions simply don't want the property on their books. I often imagine an analyst deep within the bowels of the home loan loan provider's foreclosure department looking at a screen revealing all the bank-owned residential or commercial properties in a provided postal code. This would be another one, and the bank does not desire another bank-owned residential or commercial property that it can not sell at half the quantity it lent simply four years ago. We could continue about the recklessness of the bank's decision in having 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 insolvency lawyer can do to oblige the home loan loan provider to take title to the home.

For this reason the conundrum. There are other celebrations included here-- most especially, property owners associations. HOAs have in lots of areas seen their regular monthly fees plummet as increasingly more of their members have defaulted. Their ability to collect on delinquent association fees was long believed to be secured by their ability to lien the property and foreclose. Even if their lien was secondary to a first, or even a second mortgage lien, in the days of home appreciation there was almost always sufficient equity in property to make the HOA whole. However no more. Today HOAs frequently have no hope of recovering overdue from equity in a foreclosed residential or commercial property.

So, where does this all leave the personal bankruptcy debtor who must surrender his/her residential or commercial property? In between the proverbial rock and a difficult location. The lending institution may not foreclose and take the title for months, if not a year after the bankruptcy is filed. The HOAs fees-- along with water, garbage, and other community services-- continue to accumulate on a monthly basis. http://centurylawinc.com The debtor has actually frequently moved along and can not rent the residential or commercial property. However be assured, the owner's liability for these repeating fees are not released by the insolvency as they occur post-petition. And he or she will stay on the hook for new, repeating fees up until the bank lastly takes control of the title to the residential or commercial property. HOAs will usually sue the property owner post-discharge, and they'll aggressively seek lawyers' costs, interest, costs, and whatever else they can believe of to recover their losses. This can sometimes cause tens of countless dollars of new debt that the recently insolvent debtor will have no hope of releasing for another 8 years, ought to he or she submit insolvency again.

This problem would not arise if home mortgage loan providers would foreclose immediately in the context of a personal bankruptcy debtor who gives up a home. We as personal bankruptcy attorneys can actually ask that lender to foreclose currently-- or, better yet, accept a deed-in-lieu of foreclosure, however to no get. They simply don't want the residential or commercial property. What guidance, then, should we provide to debtors in this situation? The alternatives are few. If the debtor can hold on till the residential or commercial property really forecloses previous to submitting insolvency, this would get rid of the issue. But such a hold-up is not a high-end most debtors can pay for. If this alternative is not offered, the debtor ought to either live in the residential or commercial property and continue to pay his or her HOA dues and municipal services or if the residential or commercial property is a 2nd house, for instance, an effort to lease the residential or commercial property to cover these continuous expenses.

In the last analysis, the Insolvency Code never pondered this circumstance. Nor did most states' statutes governing homeowners' associations. A solution under the Bankruptcy Code to compel mortgage lending institutions to take title to gave up real estate would be ideal, however provided the issues facing this Congress and its political orientation, we can easily state that the possibility of such a legislative solution is beyond remote.