Can You Force Your Lender to Take Back Your Home in Chapter 13 Bankruptcy?
If you've decided to give up your home in Chapter 13 bankruptcy and the bank is delaying the transfer, here are your options.
If you file for Chapter 13 bankruptcy and decide that you no longer want your home, its usually best if the property transfer or foreclosure happens quickly. Otherwise, you may be on the hook for HOA dues, city fines, or more. But sometimes the bank drags its feet on foreclosing or accepting the transfer. If this happens, you might be able to force the bank to take back the property through your Chapter 13 bankruptcy proceeding. Read on to learn more.
Your Responsibility for Vacant Property
If you've decided to move out of your home, its often in your interest to get rid of property ownership sooner rather than later. Here's why.
Even when you file for bankruptcy, notify the mortgage holder that you are surrendering the property, and actually move out, the property generally remains titled in your name.
Until title is transferred, you may be personally responsible for:
- future homeowners or condominium association fees
- any fines imposed by the city or town for failure to maintain the property, and
- damage claims which result from injuries or accidents that occur on the property.
If your bank is slow to foreclose, this situation could go on for years and put you into debt all over again.
The Lender's Responsibility For Vacant Property
Some cities and towns have passed ordinances which require banks to check on properties in foreclosure and maintain them. These laws vary and, even if they do exist in your area, they may not release you from your obligations.
Effect of Surrender or Abandonment in Bankruptcy
When you file for bankruptcy, one of the papers you are required to fill out is a Statement of Intention. This notice tells your creditors and the trustee what you plan to do with mortgaged or liened property, including your house. Generally, you choose between keeping it and paying for it, or surrendering it to the trustee.
When the trustee abandons the property. If the property is worth less than the mortgages and liens, the trustee may not want it. In this case, the trustee can abandon the property. In most cases, the effect of abandonment by the trustee is to return the property to you along with all of the responsibilities of ownership.
Transferring Your Property to the Bank Through the Chapter 13 Plan
Depending on the circumstances of your case and the district you are in (or even the judge in your case), it may be possible to try to resolve your problem through your Chapter 13 plan and the confirmation order.
It works like this.
- You include the surrender and transfer of ownership in the property to the lender in the terms of your Chapter 13 plan stating that the ownership of the property will vest (become legally effective) in the bank at plan confirmation.
- You need to get the court to go along with this and include appropriate transfer language in its order so that no deed is necessary.
- You record the court order (along with the necessary transfer language, the legal description of the property, and the name of the bank) in the official property records office.
Some courts allow this and others don't. The overall effectiveness has not yet been tested, but it is likely to get the bank’s attention. (This approach was successful in a recent bankruptcy case from Hawaii, In re Rosa, No. 13-00630 (Bankr. Hawaii July 8, 2013).)
Other Options for Getting Rid of Your Property
Even if you can’t force the bank to take the property back in a Chapter 13, there may be other options for dealing with unwanted property. If you are in bankruptcy or think that you might have to file for bankruptcy in the future, check with an attorney to make sure what you do will not negatively impact your situation.
Here are some options you might want to consider.
- Negotiate a deed in lieu, short sale, or consent judgment of foreclosure. (To learn more about these options, visit our Alternatives to Foreclosure topic area.)
- Lease the property and use the rent for maintenance, insurance, and homeowners or condominium fees.
- Transfer the property by quit claim deed.
- Stay in the house until it is foreclosed and pay for maintenance, insurance, and association dues.
Requirements for Transfers by Quit Claim Deed
If you plan to transfer the property by quit claim deed and not through a Chapter 13 plan, there are some things you should know.
Deeds should be recorded in the official property records. If you want your city, town, homeowners association or condominium association to stop billing you for fees, assessments and fines, they need to see that someone else is on record as being the owner of the property.
Deeds must be prepared and executed in the form required by your state and county. In most areas, deeds that don’t comply with requirements will not be accepted for recording and may not effectively transfer the property.
Deeds must be accepted by the new owner. This is why deeding your property to your lender without its consent generally won’t work. Unlike a transfer by court order, if the recipient doesn’t agree to accept the transfer of the property, the deed has no effect except to temporarily mislead others.
The recipient of the transfer must be capable of owning property in your state. Transfers to your pets or a non-existent entity are also not effective and, if intentionally done to escape liability for ongoing fees and fines, may be seen as fraud.