Posted on May 03, 2013

Some of our clients' houses are "underwater," that is, they owe more than they are worth. Going through a bankruptcy is an ideal time to surrender a property to a lender, since any remaining "deficiency" balance is discharged or canceled by the bankruptcy discharge order.

But lately, some mortgage companies have delayed foreclosing on the abandoned properties. Or, in some cases, the debtors are still living in them. We have had some debtors live in houses for two years or more, without making payments, and the mortgage servicers still haven't foreclosed. Why is this? In our opinion, it's because the mortgage companies don't want to pay the taxes, the homeowner association dues, and the maintenance on the properties.

This can leave some debtors stuck, because they are still the owners of the property, at least until the mortgage companies foreclose. Under the Bankruptcy Code, debtors in bankruptcy remain liable for homeowner's dues so long as they have legal title or so long as they live in the properties. They can actually be sued for the "post-petition" homeowner association dues.

As a practical matter, the HOA dues and taxes will likely be paid once the foreclosure occurs, but it is still a hassle. It is probably a better idea to do a "short sale" to get property out of your name, if you are going to surrender it in a bankruptcy, and you are concerned that the mortgage company won't foreclose quickly. We have a company that will handle the short sale process for you, from beginning to end. And if you are a client of ours and in chapter 13, we will also file the Motion to Sell that is likely required to complete the short sale process.

Read More About "Zombie" Houses Causing Some Houston Bankruptcy Debtors to have Headaches - More Short Sales May Be The Answer...

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization