WHY would a debtor want to compel bank to foreclose on his house? Recently, the LA times ran a story about a man who filed for Chapter 7 bankruptcy in 2009. He had purchased a condo loft in little Tokyo in downtown LA for $670,000 with no money down. His monthly mortgage payment was $3,000. Due to a reduction in income, he could not pay the mortgage and decided to get a fresh start without debt so he filed for Chapter 7 bankruptcy in 2009 and walked away from the condo. Several months ago, he and his wife saw that the lights were on in the condo that they thought they used to own. They also found out that the bank had not yet foreclosed after 3 years and that they still owned the condo. So, they knocked on the door of their condo to find out who was living in their condo. A man opened the door and said that he had been renting the condo for the last 3 years. Apparently, the tenant had leased the unit from a realtor who said the unit was for rent. And guess who the rent payments were going to for the last 3 years? The realtor named “Honest Abe” who is now nowhere to be found. This reminds me of my client whose house was “purchased” by a man in Riverside who paid another realtor the purchase price. A grant deed bearing the signature of my client transferring his house to the purchaser and notarized was recorded. My client had no idea that his house was “sold” until the treasurer’s office stopped sending him his real estate tax bill. It turned out that my client’s signature, as well as the notary’s signature; on the grant deed was forged.
A debtor would want to compel bank to foreclose on his house because as long debtor owns the house, the real estate taxes continue to accrue in his name, and the HOA fees continue to accrue in his name. The City might also cite him for not maintaining his backyard. Once the house is foreclosed, both real estate taxes and HOA fees stop accruing in his name. So, if you think bank will not foreclose for a long time, you might as well just stay in the house rent free instead of walking away from it. If you walk away from the house, an “Honest Abe” realtor will take over your house and rent it out and collect and pocket rent that should be going to you. Or, instead of staying in the house yourself for free, you might as well be the landlord and rent it out to a tenant who will pay you rent since you still own the house.
In Re Moore v. BAC Home Loans, the Chapter 13 debtor’s confirmed plan called for the surrender of his home to Bank of America, which held the mortgage. The bank did not object to the debtor’s plan, and subsequently was granted stay relief. Ten months after the plan was confirmed, and nine months after relief from the automatic stay was granted, Bank of America had yet to foreclose. The debtor filed an adversary proceeding alleging that Bank of America was in contempt of the confirmation order. The debtor sought actual damages for expenses related to a citation for violation of the local housing code as well as punitive damages of $250,000, attorney fees and expenses. In addition, the debtor asked the bankruptcy court to transfer the property out of his name. The court granted Bank of America’s motion for summary judgment, finding that the confirmation order did not compel the bank to foreclose upon the surrendered property. “Under the terms of a traditional security deed, the grantee holds title only for the collection of his debt,…Because the debtor remains the equitable owner of the property, I find, he is not divested of his ownership obligations until the actual foreclosure occurs or until the lender takes affirmative steps of ownership.” the court said.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.