You Could Be Stuck With Your Surrendered Home After A Bankruptcy

It’s happening all across the country.  Folks have unaffordable mortgages on homes with no equity, so they surrendered the home, filed bankruptcy, and moved on.  The Notice of Intent in Bankruptcy said they are surrendering.  What more is needed?

In fact, lots more is needed.  Ownership of the home continues until a foreclosure, a deed in lieu of foreclosure, or a short sale is completed.  The owner is liable for injuries if some child wanders onto the property or someone slips and falls on the sidewalk.  That stinks.  There’s no answer.

Lenders cannot be forced to foreclose or even accept a deed in lieu of foreclosure.  They may not want the property.  They may not want the responsibility of maintaining it or insuring it and paying the taxes.  And there are so many homes already in foreclosure, there’s a long wait before a new one could be sold at auction without destroying the fragile existing market for unoccupied properties.

You’re stuck. 

You should make certain that the property is insured.  You don’t want to be sued after a bankruptcy and suffer a new and large debt.  Your mortgage lender’s “forced placed insurance” only protects the structure and not your liability.  Shop around for liability-only insurance if possible.

And get rid of any non-paying tenants who you may have let stay there, like friends or family.  An injury could lead to a law suit against you for providing an unsafe home.  Your previous bankruptcy will not help.

It can take three years or more for a foreclosure to take place.  It can hurt your chances of buying a new home under FHA guidelines. 

The modest good news is that you don’t have to pay the property taxes.  On the other hand, Home Owners’ Association (HOA) fees are not discharged and the Association can choose to sue you instead of waiting for a foreclosure. 

Remember the good old days when home ownership was the American Dream?

Jed Berliner is a Massachusetts bankruptcy and foreclosure defense attorney.