Although many people enter Bankruptcy with a desire to save their home from foreclosure, others are anxious to rid themselves of the property and the debt associated with it. This could be their primary residence or other homes or real estate they own. A problem that occasionally comes up is that the person in Bankruptcy actually wants the lender to foreclose but the lender seems unwilling to actually take the property back. Sometimes even lenders who have previously scheduled a foreclosure seem to disappear after a Bankruptcy case is filed. This can be very problematic for people who do not live in the property. Post-petition HOA dues and assessments may continue to accrue and were not discharged in a Bankruptcy case. If the property is not maintained the city or county may assess fines for code violations. I have actually received calls from the police about vacant property still owned by clients years after their case was over. If someone is injured on the property, the owners may be sued (and often they have already dropped liability insurance). The bad news is that, generally speaking, you cannot force the lender to take back or foreclose on the property.
Many people who are in Bankruptcy, or who have completed their case, believe that stating an intent to surrender the property in their Statement of Intention (filed with the initial Schedules) means they no longer own the property, but this is mistaken. This only states an intent to allow the lender to foreclose (or to not object to foreclosure). The lender still has to actually foreclose on the property and follow all state law procedures for doing so. In addition, a deed in lieu of foreclosure also might not work because the lender generally has to willingly accept the deed. Rarely will they do this because a foreclosure would wipe out all other junior liens or interests in the property, whereas if they accepted a deed they would accept it with the junior liens. What exactly can you do? Often, it is an impossible task. Generally, a lender is not absolutely required to take its collateral in any case (in or out of Bankruptcy). Sometimes the value of the property is so low they simply do not want the burden. One option that has been tried in a Chapter 13 case is to state in the plan that after completion of the plan the ownership to the property vests in the lender. There are obstacles with this as it still has to make it through the confirmation process without objection from the lender, Trustee or Judge, and even then it would have to be properly recorded in the state real estate records. However, just trying this may wake the lender up and force them to resolve the issue. Unfortunately, most of the time the only solution is to keep bugging the lender to foreclose. Until then, at the very least, maintain liability insurance on the property that protects you – insurance placed on the property by the lender protects them, not you. Another option, and perhaps the best one, requires some pre-planning and is simply to hold off filing for Bankruptcy until after the lender has foreclosed on the property, if possible. At that point, you know you are no longer responsible for the property and you can get a discharge of the loan, HOA dues and other debts and responsibilities related to the property.