What If The Bank Refuses to Foreclose?

In re Heck, 2011 WL 133015 (Bankr. N.D.Cal. 2011)

This is a short decision, but nonetheless an important illustration of one of the many struggles that consumer debtors face.  When a debtor surrenders their house in bankruptcy, it does not mean that the bank will take it back right away.  Usually this is a good thing for debtors, because it gives them some time to move into a new place.  In fact, sometimes the bank can take up to a year or more to complete the foreclosure, because of foreclosure backlogs.

Delayed foreclosures are problematic for debtors who have already moved out of their house and just want to be rid of it.  It is even more problematic if there is a homeowners association (HOA), because post-petition HOA dues are nondischargeable.  That means that from the date the petition is filed to the date the debtor’s name is taken off of the title, the debtor is responsible for the HOA dues.

Unfortunately, the only remedy for this is to negotiate a deed in lieu of foreclosure with the senior lender.    The debtors in In re Heck tried to reopen their case and force the lender to take the house back.  The judge denied the motion, because a bankruptcy judge has no authority to force a bank to foreclose or take a house back.   It is important for a debtor to make it clear to their lawyer that they need a deed in lieu of foreclosure, because a deed in lieu is not part of a standard bankruptcy case.   The Debtor must also understand that if the bank refuses the deed in lieu of foreclosure, their only other option are to either wait for a foreclosure or sell the house.

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