Perhaps remarkably, among the most discouraging developments in our continuous foreclosure crisis involves home mortgage lenders' obstinate resistance to execute with a foreclosure in a prompt manner. Many typically, this situation develops in a Chapter 7 Bankruptcy in which the debtor has actually identified that it remains in his or her benefit to give up a house.

As all of us understand, specify anti-deficiency laws figure out whether a home loan lending institution may seek a shortage judgment after a foreclosure. We also understand that a Bankruptcy Discharge will protect that house owner from such liability regardless of what the debtor's state statutes need to say worrying whether a mortgage lending institution might look for a shortage judgment.

While defense from post-foreclosure liability to the home mortgage loan provider remains an effective advantage offered by the Insolvency Discharge, a fairly brand-new source of post-bankruptcy petition liability has actually arisen in the last couple of years. One that our clients are all too frequently surprised by if we neglect to use significantly detailed suggestions prior to, during, and after the filing of an insolvency petition.

What I am talking about, naturally, are Homeowners Association charges, and to a lower level, local water and garbage fees. As all of us should understand well, such repeating fees collect post-petition, and precisely because they recur post-petition, they constitute new debt-- and as new financial obligation, the Insolvency Discharge has no effect whatsoever upon them.

The typical case includes a Chapter 7 insolvency debtor who chooses that she or he can not possibly manage to keep a house. Perhaps this debtor is a year or more in arrears on the very first mortgage. Maybe 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 use a loan modification despite months of effort by the house owner. The home in all likelihood won't deserve the protected quantities owed on it for decades to come. The month-to-month payment has gotten used to an installation that is now sixty or seventy percent of the debtor's home income. This home needs to be surrendered.

The issue, obviously, is that surrender in personal bankruptcy does not relate to a prompt foreclosure by the lender. In days past, state 3 or perhaps just 2 years ago, it would. But today, home mortgage lending institutions just do not want the residential or commercial property on their books. I frequently picture an analyst deep within the bowels of the mortgage lender's foreclosure department taking a look at a screen showing all the bank-owned homes in a given 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 amount it lent simply four years earlier. We could go on and on about the recklessness of the bank's decision in having made that original loan, however that is another short article. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's insolvency attorney can do to force the home loan lending institution to take title to the home.

Hence the dilemma. There are other celebrations involved here-- most notably, property owners associations. HOAs have in many locations seen their regular monthly charges plunge as more and more of their members have defaulted. Their ability to gather 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 almost always adequate equity in property to make the HOA whole. But no more. Today HOAs often have no hope of recuperating unpaid from the equity in a foreclosed residential or commercial property.

So, where does this all leave the bankruptcy debtor who must surrender his or her residential or commercial property? Between the proverbial rock and a hard place. The lender may not foreclose and take the title for months, if not a year after the bankruptcy is submitted. The HOAs fees-- together with water, garbage, and other community services-- continue to accumulate on a regular monthly basis. The debtor has often moved along and can not lease the property. But be assured, the owner's liability for these recurring costs are not released by the bankruptcy as they occur post-petition. And he or she will remain on the hook for brand-new, recurring costs up until the bank lastly takes over the title to the home. HOAs will normally take legal action against the property owner post-discharge, and they'll aggressively look for attorneys' costs, interest, costs, and whatever else they can think about to recoup their losses. This can in some cases cause 10s of countless dollars of new debt that the recently insolvent debtor will have no hope of releasing for another 8 years, should she or he file personal bankruptcy once again.

This issue would not emerge if mortgage loan providers would foreclose without delay in the context of a personal bankruptcy debtor who gives up a home. We as Century Law Firm bankruptcy lawyers can literally plead that lender to foreclose currently-- or, better yet, accept a deed-in-lieu of foreclosure, but to no avail. They just don't desire the residential or commercial property. What recommendations, then, should we offer to debtors in this circumstance? The alternatives are few. If the debtor can hang on till the home actually forecloses prior to submitting bankruptcy, this would get rid of the issue. But such a hold-up is not a luxury most debtors can manage. If this option is not offered, the debtor ought to either reside in the property and continue to pay his/her HOA charges and local services or if the residential or commercial property is a 2nd home, for instance, an attempt to rent the property to cover these continuous costs.

In the final analysis, the Bankruptcy Code never considered this situation. Nor did most states' statutes governing property owners' associations. A remedy under the Personal bankruptcy Code to compel mortgage lending institutions to take title to surrendered real estate would be perfect, however offered the concerns facing this Congress and its political orientation, we can conveniently state that the possibility of such a legislative option is beyond remote.