Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

Surrendering Real Estate Might Not Work in Bankruptcy

In New York bankruptcy it’s possible, but not common, for debtors to unsuccessfully surrender their homes or other real estate. They receive their discharges, exit bankruptcy, and find that they still own the property with a mortgage lien still attached to it. How can something so bizarre happen?

Answer: Just because you say you want to surrender it, doesn’t mean you did.

In bankruptcy, the notice of intent to surrender a property, usually a house in chapter 7, means exactly what it says: You are telling the trustee you want to give up the property, but you don’t actually do so. The trustee might believe the property isn’t worth selling, and the bank might not foreclose on it (and there’s been some evidence of things like that happening in the New York City area). The result is that you end up with a piece of real estate when you said you didn’t want it—and you still have to pay on the mortgage.

The only way to dispose of a property is to sell it, whether by a regular sale, short sale, or deed-in-lieu of foreclosure. Otherwise, legally you will still own the property.

If you’re confused as to why you may have heard stories about people just mailing their house keys to lenders, the reason is probably that it occurred out west. Most states beyond the Mississippi River use what’s called the “title theory” to mortgages, which states that the lender owns the legal title while the borrower has an equitable right to live in or use the home. Once the mortgage is paid, the legal title shifts to the land owner. In these states, because the bank is technically the legal owner, the borrower can easily surrender the equitable right to the bank.

In New York, and other northeastern states, things work differently. They use the “lien theory,” which legally places the home in the hands of the homeowner, meaning they’re the ones stuck with the title if no one wants it.

The greatest risk to an unsuccessful surrender isn’t the nuisance of a reduced credit score for missed mortgage payments. Rather, it’s the liabilities that can attach to landownership that title-holders might have thought they didn’t have. These would be responsibility for injuries to people that occur on the premises (something forced-place insurance probably won’t cover), unpaid taxes, and for condo owners, homeowner association charges.

If you have a property that might not be salable, then you’ll definitely want an experienced New York bankruptcy lawyer to help you “lose” the property to a lender or the trustee.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced landlords rights in bankruptcy Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

Recent Posts

Beware Grace Periods, Debtors

Too often, debtors see grace periods offered by lenders as free benefits. “Grace” makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them

Read More »

Bankruptcy May Not Rescue You From Vicious Personal Disputes

Bankruptcy is a technical process that assumes everyone working within it is mostly rational. To the extent that it expects parties to deviate from irrational behavior, the Bankruptcy Code and its accompanying rules include incentives to keep parties in line. Creditors are usually large and impersonal, and they rarely care if their debtors file bankruptcy.

Read More »

Non-Lawyers’ Explanations of Bankruptcy May Be Wrong

Do you have financial problems? Do you tend to ask your friends for advice? Is one of your friends an experienced New York bankruptcy lawyer who will explain the process for you? Are your friends otherwise knowledgeable people? The answer to these questions may be, “Yes but you don’t know it.” Although many bankruptcy lawyers

Read More »

6 Steps to Take Before Filing Bankruptcy

Leaving your case to an experienced New York bankruptcy lawyer is not the only step on the to-do list before filing bankruptcy. There are many things debtors should do (and not do) before they file, and the more organized and mindful debtors are, the easier the process will be and the more effective the result.

Read More »

Social Security Number Not Necessary for Bankruptcy

A question that’s commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, “Your Statement About Your Social Security Numbers” (B 121), which asks debtors to list their current and prior Social Security numbers. The new bankruptcy

Read More »

How Can a Debtor (or Creditor) Get a New Trustee?

The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In

Read More »
Scroll to Top