If you are giving up or “surrendering” your house in bankruptcy, our initial advice to our clients is to stay in the house until the foreclosure sale date. As a general rule, it takes quite a while for most mortgage companies to foreclose on a home. As a result, if our clients move out prior to the foreclosure, then they still may be responsible for utilities, insurance and any city or municipal requirements such as lawn care and maintenance. Because of that, the most prudent solution is for clients to stay in the house until the foreclosure sale date which actually is the mechanism by which mortgage companies transfer properties back to themselves.
Several bankruptcy courts have held that there is no discharge injunction violation if a mortgage company refuses to either foreclose on a property or release a judicial lien on a residence. If a mortgage company refuses to or fails to foreclose on a home, then, as a general rule, the buyer of the property will remain responsible for the payment of taxes, insurance, and maintenance. What that allows for, then, is essentially a free pass to allow people to live in a property without paying a mortgage payment and to simply keep up the taxes, insurance, and maintenance on the property.
This is the best course of action for anyone considering filing either a chapter 7 or chapter 13 bankruptcy and giving up or “surrendering” their interest in a home. Our advice is to save the money you would use to pay the mortgage principal and interest and put it aside for moving costs and a down payment for your new place if and when the mortgage company finally forecloses. Again, please keep the property maintained and cared for as far as any homeowner’s association requirements, utilities, lawn and shrubbery, etc., UNTIL the actual foreclosure sale by the mortgage company when the property actually changes ownership.
Once you are all set to leave your house, make sure you have removed everything from the house. Clean the house and leave it in a broom swept condition. Once you “officially” leave the house, you will not be able to return. Once you have moved everything out, write a letter to each mortgage holder (1st, 2nd, and 3rd mortgage companies, if any), enclose a key to the home and give them this information in the letter you prepare:
Use this as a sample only and create your own actual letter:
Mortgage Company Name
Full mailing address of mortgage company
Re: Your full name, address of home, BK case #
As you are aware, we have filed bankruptcy on our home located at (full address of home). Our bankruptcy case number is (list #) and it was filed in the State of (name of state you filed in). We have officially moved out of the house. As a result, we wanted to give you notice of our official departure and let you know that you can secure the house as soon as possible. To allow you access to the house, we have enclosed a key with this letter.
Thank you for your immediate attention to this matter. Also, because of the bankruptcy filing, please ensure that we are not ever contacted by your company by phone or in writing ever again. Thank you.
Your full name(s) printed and signed
Your full mailing address
Please ensure you keep a copy of the signed letter you send and also please be sure to mail it by certified mail, return receipt requested. Please also always keep the returned green card so that you can prove, if necessary, that you notified the mortgage company or companies if more than one of your departure.
Every situation is different and the facts of every situation should be discussed in detail. Please free to contact our office location nearest to you to meet with one of our licensed attorneys to discuss your particular situation in detail.
Ron Sykstus is a Managing Partner of several of the Bond & Botes Law Offices throughout Alabama. He holds a Bachelor of Science from the University of Arizona, Tucson, and a Juris Doctorate from the Northern Illinois University College of Law. Ron has served in numerous positions throughout the U.S. Army and now utilizes his expertise in the areas of VA issues, security clearances, military law, and bankruptcy to assist his clients when they need it most. Read his full bio here.