Effective December 1, 2017 the Southern District of Texas, including the Houston and Galveston divisions, has a new standard chapter 13 plan.
Among many other changes, it allows consumers who want to surrender their homes or other real estate to transfer their home or other real estate to lienholders such as mortgage companies to satisfy mortgages, when the mortgage companies fail to timely foreclose and fail to timely agree to accept a deed to the property from the consumers. It will work like a "deed in lieu of foreclosure." Why would anyone want to give up their home or other real estate?
Because during the mortgage crisis and in the years since, some people have found that their property values declined, and they were unable to sell their homes or other real estate. At the same time some mortgage companies failed to timely foreclose on the homes, even if the homeowners stopped paying the mortgage payments. This left the homeowners stuck with the ongoing expenses of owning property: homeowner's association dues, maintenance, utilities, property taxes, etc.
This is because even though the homeowners stopped paying mortgage payments and may have even moved out of their home, if the mortgage company decided not to foreclose, the homeowners remained the legal title owners of the property. Mortgage companies may decide not to foreclose for various reasons, not the least of which is they don't want to become legally responsible for the cost of ownership of the abandoned properties either!
One of the changes to the new chapter 13 plan allows the debtors to file a "Notice of Transfer Pursuant to Bankruptcy Plan," in the county real property records on or after 30 days after confirmation of their chapter 13 plan, if their mortgage company or other lienholder on their property has not elected to accept a special warranty deed from them, or elected to foreclose. And if they elect to foreclose, they must do so within 90 days following the entry of the confirmation order.
Now that home values have recovered or are recovering, I don't believe we will need to use this provision for very many of our chapter 13 clients. But it is a great provision to have in our standard plan, to use just in case. Some clients may have old or dilapidated property that they cannot sell and the lienholders may not want. This provision will let us get property out of the debtors' names quickly, so that they are no longer responsible for HOA dues, taxes, insurance, and the other expenses and liabilities that go along with property ownership.
Do you think this was a good addition to the chapter 13 plan in the Houston bankruptcy court? Have you been stuck with property that you could not get rid of? Please leave your questions or comments below!