Common Mistake Made by Bankruptcy Filers and Their Attorneys #7

7. Assuming property taxes and home owner association assessments will end when real property is surrendered and the debt discharged.

This is one of the most annoying discoveries after a person surrenders their home in bankruptcy. They assume their "Fresh Start" will include the property taxes and homeowners' association dues. The fact is it does up to the date of filing the bankruptcy, but the debtor is still liable for new assessments and taxes that accrue after the bankruptcy. This doesn't seem right to consumers who have lost their home. If they aren't in possession anymore why would they be liable for taxes and HOA assessments?

The problem is that until they mortgage lender forecloses they are still technically the owner of the property. It used to be that foreclosures took place fairly quickly after a property was surrendered, but after the 2008 real estate crash quick foreclosures became the exception rather than the norm. Now foreclosures often drag on for months and even years. So, the homeowner who surrenders his property in bankruptcy now must endure endless harassment from homeowner associations, taxing authorities and municipal code enforcement agencies until the property is finally foreclosed and their liability stops.

There ought to be a law requiring mortgage companies to quickly foreclose, but there is no such law and one is not likely to be ever enacted.  But on the bright side I have seen several times where the mortgage lender completely abandons its security interest in the property leaving the debtor with a free home or a windfall of whatever price he can get for the house. Don't do what one of client's did, however. When he got a notice from his lender that they were releasing the lien on the house and all he had to do was agree to accept it, he was so suspicions he rejected the offer. Needless to say he was very upset when he found out he had thrown away over $50,000!

So, when a consumer decides to surrender his homestead in bankruptcy he should factor in the likelihood that he will have to keep paying the HOA dues after bankruptcy until the property is sold, that he will have to maintain the exterior landscaping to meet local code requirements if the lender doesn't do it, and pay the property taxes until the property is foreclosed. If he is lucky the lender will pay the property taxes and keep up the exterior maintained until foreclosure, but he needs to monitor the situation and make the sure the lender does so.

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