Surrendered Properties, Part II

In the prehistorical times, when the property values made sense, it was possible to surrender a property in a bankruptcy proceeding.  A debtor would check a "SURRENDER" box on the form, and a lender would follow through by taking possession of the property.

It is rarely explained to debtors, however, that a lender is not REQUIRED to take possession of the debtor's property.  A bank may want to foreclose on a home...  or it may decide not to do so.  Why?  Because lenders understand that being an absentee landlord is a losing proposition.  Because properties in some parts of the country do not sell well and deteriorate quickly.  Because, once the lender take possession, it has to deal with the HOA fees, blight statutes and taxes.  Home ownership, as everyone quickly discovering, is no longer fun or profitable.

So what does this mean for a homeowner in a Chapter 7 (or for someone who is contemplating a Ch. 7)?

First of all, if you must move (because of a new job, family, etc.) and do not want to deal with the post-bk HOA/state lawsuits (it is now an unfortunately common occurrence), make sure that your housing situation is resolved: the property is sold at a short sale, foreclosed, etc.  Also, make sure that the new owner DOES takes possession because some foreclosure sales fall through, and some are not ratified by the courts (Maddox v. Cohn in Maryland caused quite a few foreclosure sales to fall apart, for example).  Check the land records to confirm.  Three months from now, while living in California (I just like using California as an example because it is one of my favorite states), you do not want to find out (by receiving the summons) that the property still belongs to you, and someone is getting ready to sue you in connection with the property.

And if you are not interested in moving?  Perhaps you are in for a really great deal because the lender actually may WANT you to live in the property, rent free.  Why? Because even though the bank may not be interested in your property now, some day it might want to take it over.  And having someone (you) house-sit is cheaper than having to deal with an abandoned property (stolen pluming fixtures/pipes, broken windows, squatters, etc.).  And do not forget the state blight laws!

However, please do not try to slug through this confusing morass of ever-changing BK and state laws yourself.  Call an attorney.