Renton Washington Bankruptcy and Foreclosure Information

Possibly remarkably, one of the most aggravating developments in our ongoing foreclosure crisis pertains to home loan lending institutions' obstinate resistance to perform with a foreclosure in a timely way. Many commonly, this circumstance occurs in a Chapter 7 Bankruptcy in which the debtor has actually figured out that it remains in his/her finest interest to surrender a house.

As all of us understand, mention anti-deficiency laws figure out whether a home mortgage lending institution may look for a shortage judgment after a foreclosure. We also know that a Personal bankruptcy Discharge will secure that house owner from such liability no matter what the debtor's state statutes have to say worrying whether a mortgage loan provider might look for a shortage judgment.

While protection from post-foreclosure liability to the home loan loan provider remains an effective benefit used by the Bankruptcy 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 surprised by if we disregard to offer increasingly thorough recommendations before, throughout, and after the filing of an insolvency petition.

What I am speaking about, naturally, are Homeowners Association fees, and to a lesser level, municipal water and trash charges. As all of us ought to understand well, such recurring fees build up post-petition, and exactly due to the fact that they repeat post-petition, they constitute new financial obligation-- and as brand-new debt, the Insolvency Discharge has no impact whatsoever upon them.

The common case includes a Chapter 7 insolvency debtor who decides that she or he can not possibly manage to keep a house. Maybe this debtor is a year or more in arrears on the very first mortgage. Possibly 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 use a loan modification regardless of months of effort by the homeowner. The house in all likelihood will not be worth the protected amounts owed on it for decades to come. The regular monthly payment has gotten used to an installation that is now sixty or seventy percent of the debtor's family income. This home should be given up.

The issue, naturally, is that surrender in bankruptcy does not equate to a prompt foreclosure by the loan provider. In days past, say 3 or perhaps simply 2 years ago, it would. But today, home mortgage lenders simply don't desire the residential or commercial property on their books. I often picture an analyst deep within the bowels of the home loan lending institution's foreclosure department looking at a screen revealing all the bank-owned residential or commercial properties in an offered 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 amount it lent simply 4 years ago. We could continue about the recklessness of the bank's choice in having actually made that initial loan, but that is another post. Today the property is a hot potato, and there is nothing the debtor or the debtor's bankruptcy lawyer can do to force the home loan loan provider to take title to the property.

Thus the dilemma. There are other parties involved here-- most notably, house owners associations. HOAs have in numerous locations seen their regular monthly charges drop as increasingly more of their members have defaulted. Their capability to gather on overdue association fees was long thought to be secured by their capability to lien the residential or commercial property and foreclose. Even if their lien was subordinate to a first, and even a 2nd home mortgage lien, in the days of house gratitude there was nearly constantly sufficient equity in genuine estate to make the HOA whole. However no more. Today HOAs often have no hope of recuperating previous fees from equity in a foreclosed home.

So, where does this all leave the personal bankruptcy debtor who must surrender his or her home? Between the proverbial rock and a tough location. The loan provider may not foreclose and take the title for months, if not a year after the insolvency is filed. The HOAs fees-- along with water, trash, and other community services-- continue to accrue on a month-to-month basis. The debtor has typically moved along and can not rent the home. However be assured, the owner's liability for these recurring costs are not discharged by the personal bankruptcy as they emerge post-petition. And she or he will stay on the hook for brand-new, repeating costs until the bank finally takes control of the title to the property. HOAs will normally sue the property owner post-discharge, and they'll aggressively seek attorneys' fees, interest, expenses, and whatever else they can think about to recoup their losses. This can in some cases cause tens of countless dollars of brand-new debt that the recently bankrupt debtor will have no hope of releasing for another 8 years, need to she or he file personal bankruptcy once again.

This issue would not develop if home loan loan providers would foreclose promptly in the context of an insolvency debtor who gives up a house. We as bankruptcy lawyers can literally beg that loan provider to foreclose currently-- or, even better, accept a deed-in-lieu of foreclosure, but to centurylawfim.com no obtain. They just don't desire the residential or commercial property. What advice, then, should we offer to debtors in this scenario? The options are few. If the debtor can hang on till the residential or commercial property really forecloses prior to submitting insolvency, this would get rid of the problem. However such a delay is not a high-end most debtors can manage. If this alternative is not available, the debtor needs to either reside in the home and continue to pay his/her HOA fees and community services or if the property is a second house, for instance, an attempt to lease the property to cover these ongoing expenses.

In the final analysis, the Bankruptcy Code never considered this circumstance. Nor did most states' statutes governing property owners' associations. A treatment under the Personal bankruptcy Code to force home mortgage lending institutions to take title to gave up real estate would be perfect, however offered the problems facing this Congress and its political orientation, we can conveniently say that the possibility of such a legal solution is beyond remote.