We are receiving more and more calls from property owners who are wondering why their lender has not finished the foreclosure on their home after the property owner has filed for Chapter 7 bankruptcy and has received a discharge.
Typically, in a Chapter 7 bankruptcy in the state of Florida, a borrower and the trustee will abandon any property in the bankruptcy estate that has no equity. The borrower doesn't want it because it is underwater and because they will receive a higher exemption for personal property if they do not claim a homestead as exempt property in a Chapter 7. The trustee doesn't want it because a sale of the property will not achieve any benefit for the creditors of the bankruptcy estate. And, apparently, the lender does not want it either because in many, many instances, the lender takes months or years to complete the foreclosure.
This inaction by lenders can sometimes create unexpected and unintended ramifications for the property owner. Although the Chapter 7 discharge relieved the debtor from repayment of the debt, the property owner still owns the property. So what, you might ask? Why should a property owner who received a Chapter 7 discharge care about continued ownership of the property?
- Because the property owner is still responsible for injuries that occur on the property. However, most of the time, the property owner has not paid the premiums for the property insurance and is not typically covered by the lender's "force placed" insurance.
- Because the property owner is still responsible for any association dues that accrued after the date of filing of the petition for Chapter 7 relief. If and when the lender completes its foreclosure, the property owner is responsible for any portion of the post-petition association dues that accrue that are not paid by the lender.
- Because the debtor moved out of the property long ago and wants to buy a new house 3-4 years after receiving a discharge but often is denied financing that they otherwise would be able to get if they did not already own a property.
Additionally, because most lenders realize (finally!) that a short sale is the least costly method of recovering the property and satisfying the debt, a debtor may be eligible for relocation assistance money to be paid at the closing on the short sale of the property.
If you or someone you know is still saddled with ownership of an underwater property after filing for a Chapter 7 bankruptcy, please call our office at (941) 363-0110 for more information on how to short sale your property after receiving a Chapter 7 discharge.