What are my responsibilities if I stay in my house even though I’m surrendering it in my bankruptcy?

Suppose you’ve filed a bankruptcy in which you plan to surrender your home to the mortgage lender/bank. The bank may or may not have filed a foreclosure action to legally take it back yet. You are likely wondering if you have to move out immediately. The answer is that you do not. You should have, at the very least, several months where you can remain in your home mortgage-free, if not indefinitely. You have the right to live in your home until the property is sold. At that point, the deed will be taken out of your name and you will no longer own the home. You will be notified when that takes place and given a reasonable time to move out.

Keep in mind that the legal procedure by which a bank takes back real estate is through a foreclosure action filed in your county’s common pleas court. In that filing, they give notice not only to you, but also to any other creditor who may have an interest in the property, such as second mortgage holder or the county treasurer to see if real estate taxes are owing on the property. If the foreclosure action was filed before you filed your bankruptcy, it is temporarily “stayed” by the bankruptcy filing. The attorney for the bank will have to file a motion for “relief” from the automatic stay to go forward with the foreclosure action. Getting the relief order from the bankruptcy court takes about a month.

If no foreclosure action is in progress before you file the bankruptcy, then the bank’s attorney must still request relief from the bankruptcy court before filing one in the county court. Keep in mind that there is no requirement that you do anything in response to the foreclosure pleadings, or that you attend any court hearings. (Unless you are contesting the fact that you are behind in your mortgage payments or that the statements made in the pleadings are accurate.) If you realize that you cannot keep the house, there is no purpose in you appearing in the foreclosure proceedings. It is important, however, that you bring a copy of the summons and complaint to me. I will make sure that the county court and the filing attorney know about the bankruptcy, and that the only relief they can get from the foreclosure is the proceeds from the sale of the property itself. Because of the bankruptcy, the bank cannot come after you personally if the sale does not make enough to cover the balance of the mortgage. (Without a bankruptcy, they could come after you for the deficiency balance.)

In recent years, it is common that the banks do not buy the home back at the sheriff’s sale in the event that no one else makes a bid on it. This occurs when the value of the home has fallen so much that the bank does not think they are going to re-sell the property for the mortgage balance. In that event, you still own the home and have the right to live in it without paying the mortgage. Further, even in the event that the bank does buy it and puts the deed in its name, so long as the property isn’t sold to a third person, they will willingly let you remain living there rather than let the property remain vacant and risk being cited by the municipality for it becoming an eyesore or nuisance.

Keep in mind that so long as the house remains in your name, you are responsible for keeping the outside of the property up to the standards imposed under your municipality’s ordinances. That is, you must keep the grass cut so that it’s not unsightly, you must keep garbage from accumulating in the yard, and you must do general maintenance to the extent that the property not look from the street like it’s abandoned. Your failure to maintain it to reasonable standards may result in you being called into municipal court and fined. With that in mind, you may be better off continuing to live in the property rather than moving out. Also, you are going to have to pay for basic utilities wherever you live — it’s just as well that you stay in your home and keep the utilities on there rather than move out and have the aggravation of a pipe freezing and bursting in the winter.

I further strongly recommend that you keep homeowner’s insurance on the property so long as it remains in your name. That may be almost impossible to do if you move out and don’t have a renter in it. If someone is injured on the property, they will likely come after you as the owner of record, and an explanation that you intended to surrender the property in your bankruptcy is not going to cover you from liability like a good policy of insurance will! In the event of a fire or other calamity, it will save you much hassle if insurance coverage is in place.

You may have been paying your homeowner’s insurance as part of your mortgage payment, with the bank setting up an escrow account for the premiums and paying them as they become due. Obviously, if you are no longer making your mortgage payments, there is no escrow account to cover insurance premiums. You will have to contact your insurance agent and look into the cheapest insurance you can purchase to protect and give you peace of mind. If you move out of the house during this time, I advise that you look into a special vacant property liability policy. This would not protect the house from fire or other damage, but does protect you from liability to someone who is injured and tries to sue you.

Staying in your home for as long as you can will allow you to put aside money for the eventual rental or purchase of your next home, and should assist you in being able to afford somewhere you like rather than whatever you can get. That’s the objective in staying where you are and enjoying your home for as long as possible.

This is a brief guide to what you can expect if you intend to surrender your home in a bankruptcy. Your situation could be different to the extent that these general guideline do not totally apply to you. A consultation with a bankruptcy professional may be needed to give you your options in staying in your home during these proceedings.

About Barbara Horwitz

Barbara Horwitz is an experienced bankruptcy attorney helping people get past financial difficulties. She believes in creating a relationship with clients and is dedicated to making the bankruptcy process as easy and stress-free for clients.

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