When the Bank Won’t Accept the Surrender – A Great New (Possible) Solution

Question:  The Debtor surrendered the property in the plan and moved out.  No one foreclosed.  Is the Debtor still liable for the HOA fees?

“The First Circuit has held that ‘surrender’ only means that the collateral is made available to the creditor, but the creditor is not required to accept the property.  See In re Pratt, 462 F3d 14 (1st Cir. 2006).  I think that ‘surrender’ is not effective until the debtor actually vacates the property since so long as the debtor has actual possession, it isn’t really ‘available’ because the creditor/HOA would have to do an eviction case or take some other affirmative step to obtain actual possession.

“I think the better way to handle this is to provide in the chapter 13 plan that upon confirmation, the property will vest in the mortgagee or HOA (as the case may be), in accordance with §§1322(b)(8) and (9).  See In re Bryant, 323 BR 635 (Bkrtcy.E.D.Pa. 2005).  I did this in a plan recently, for the first time, and somewhat to my surprise, no one blinked, much less objected, so the plan was confirmed.  I will record a copy of the Confirmation Order at the Registry of Deeds, and that will take the debtor off the title.”

David Baker

Additional comment for 9th Circuit readers (subtitle – “there’s always another side”):

You’ll want to do research in your jurisdiction to determine how the courts treat post-petition dues in a 13.  Here in the 9th circuit, lower courts are leaning towards treating the dues as obligations that run with the land and are the personal obligation of the debtor despite the bankruptcy or inapplicability of 523(a)(16). See, e.g., In re Foster, 435 B.R. 650; 2010 Bankr. LEXIS 2468 .

I would caution trying to transfer title as part of a bankruptcy order.  Transfer of title is a matter determined by state law and it’s unlikely the bankruptcy court has the authority/jurisdiction to do what you’ve proposed.  Most HOA CC&R’s and most deeds of trust have attorneys fees provisions, so if you end up in court over it, your client may end up paying a lot more than they would have.

Stephen M. Smith
Seattle, WA

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