Thursday, September 5, 2013
What If They WON'T Take The House?
One of the harder issues in bankruptcy is surrender of assets. With a regular asset like a car, most of the time the creditor wants the asset returned quickly so they can sell it and cut their losses. However, with real estate, we live in a Bizarro world. Sometimes, the mortgage creditor wants to sell the house, but not quite yet. The problem is that as long as the title to the property is in the debtor's name, the debtor is responsible for taxes, insurance and any fines issued against the property. The bank may not want to take on those legal and financial responsibilities until they have a buyer, or they want to wait for the market to improve, interest rates to rise, or just control the rate at which defaulted properties go for sale to control real estate prices. Great for them, not so great for a debtor. Are they allowed to wait in order to maximize their eventual recovery forever? Even if it harms the debtor? Is there any way to force the creditor bank to take the house? This is an open issue in bankruptcy. Recently, in one case, the First Circuit has said generally "no" - but possibly "maybe" if the facts were a little different (citation omitted so laymen can follow the reasoning). There is also the issue of more limited Federal jurisdiction of the Bankruptcy Courts in general due to recent U.S. Supreme Court decisions. I think that until the courts work out the law, a wiser decision may be to post a document on the court docket showing that you offered the house to them and they refused. This perhaps may open up an argument regarding the deficiency on the house based on a "failure to mitigate damages" argument. Maybe this could help when the bank inevitably issues a Form 1099 as to the amount of the loss. I don't give tax advice here but it is something to consider discussing with your tax lawyer or accountant. To sum up in layman's terms, I think you can't force them to accept the deed, but you might be able to use their refusal to accept it to some legal effect in some circumstances. It's just a thought, for now. But it wouldn't be the first time a bank's gaming the system eventually came back to bite them in some other way.