Many people become confused about what it means to ‘surrender’ an asset
in a bankruptcy. It is commonly believed
if you surrender a property through a bankruptcy proceeding, somehow you no
longer own that property. The problem is
that this is not only wrong, but a dangerous misunderstanding.
Surrendering your rights to a piece of real property through a
bankruptcy is merely a statement of your intention regarding that
property. It has no vesting power to the
ownership of that property. You remain
title owner of the property and, to some extent, you are liable for
post-bankruptcy taxes, HOA dues, and tort actions.
As owner of the property, if someone is injured on the property, you
could be exposed to significant liability.
If significant time passes after you file the bankruptcy, then you could
be facing a huge HOA assessment including fines!
A big reason to desire to surrender property through a bankruptcy is
because the property is a source of dangerous liability. Imagine a couple who inadvertently rented
their condo to meth manufacturers. The
risk and costs for this poor couple could easily make the property undesirable
to retain. The issue is that the first
mortgage holder may not be in a big hurry to foreclose on the property. It could be years that this toxic property
remains in the couple’s name after a bankruptcy. During that time, they would be liable on the
condominium association’s dues. No one
wants to throw good money after bad.
Luckily for this group of individuals, there is an option to force the
lender’s hands. In a Chapter 13
Bankruptcy, the property owner can include special language in the plan that
will not only surrender the property, but to actual transfer ownership to the
first mortgage holder. This can be done
even in the face of creditor objections in many cases.
If you or someone you know has a toxic property, they should consult
with a qualified professional that can explore all that property owner’s
options to best resolve their issue.
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