By: Justin M. Kincheloe, Esq.
Many distressed homeowners file bankruptcy and elect to surrender their home to the lender so they can simply “walk away.” A common misconception among homeowners is that they have effectively surrendered their property by merely checking the “Surrender” box on the Statement of Intent form filed in the bankruptcy case. Unfortunately, it is not this easy.
A surrender of real property is only effective when title legally changes hands. This typically requires the signing and recording of a deed (check your state laws) or a foreclosure by the lender. The homeowner is still the legal owner of the property until one of these two things occurs.
For various reasons, banks are typically reluctant to accept a transfer deed from the borrower. Instead, banks will typically wait to let the bankruptcy run its course and then foreclose on the property. This can take several months. This can be especially troublesome for homeowners whose property is subject to homeowners association (“HOA”) dues.
As each month passes, the homeowner incurs additional HOA dues. Furthermore, the HOA dues that accrue after the bankruptcy filing are not discharged. 11 U.S.C. § 523(16) provides that any HOA dues that accrue after the bankruptcy is filed are excepted from discharge.
Thus, homeowners intending to surrender should maintain the HOA dues on the property until the property is either foreclosed or the lender accepts a transfer deed. Otherwise, the HOA will likely pursue collections against the homeowner for the unpaid dues that were not discharged in bankruptcy.
Paying the HOA dues on time until the home is transferred to the lender will save the homeowner from having to pay additional late fees, interest, and collection costs.
For more information or inquiries contact one of our experienced licensed attorneys at Thompson Steinberg.
Justin M. Kincheloe, Esq.
Justin Kincheloe is a partner and co-founder at Thompson Steinberg. He is licensed to practice in California and has been practicing consumer bankruptcy law for over three years. Mr. Kincheloe was born and raised in Des Moines, Iowa before moving to California. He is an avid sports fan and has a real passion for music.
**The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This blog posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.**