One of the most frustrating things my clients deal with is the refusal of their bank to foreclose on their home after they file bankruptcy. Unfortunately, and I can say this as a homeowner myself, owning a home can be quite a burden. Repairs, taxes, insurance, and HOA dues can add up to a small mortgage payment. A bank refusing to foreclose a home can be a nightmare for a home owner whose HOA dues are substantial, but it doesn’t have to be if you use a little business sense and figure out a way to make it work for you. Remember that until the bank forecloses, you still own the home and are liable for a number of bills that come due after you file bankruptcy – like taxes, code violations, and HOA fees. Banks will often refuse to foreclose if the HOA dues are sky-high and the property is worth much less than the balance owed on the mortgage. Plus, the banks have to pay for hazard insurance and taxes. In many cases, it’s more of a burden than a boon.
Here is a list of a few things you should do or at least consider doing if the bank refuses to foreclose on the property.
- Maintain the Property: Many cities and counties have housing codes that must be adhered to for the public’s safety, like maintaining the sidewalks, cutting the grass, and preventing the house from falling into disrepair or becoming a nuisance. This is especially true if you have a swimming pool. If a court deems the pool was an “attractive nuisance,” you could be held liable for any child that gets injured as a result of your failure to properly secure the pool.
- Insure the Home: Along those same lines, as long as you are still the owner of the property, keeping liability insurance on the property is absolutely essential in case someone gets hurt while your name is still on the deed.
- Pay Your HOA Dues: While filing for bankruptcy will wipe out any past-due Home Owners Association dues, any dues that arise after you file are still your responsibility until the bank forecloses on the property or you get the property out of your name. This is especially a problem for luxury condos that can have HOA dues that equal or even exceed the mortgage payment. In cases like this, the condos can be VERY aggressive collectors, so I often advise clients to live in the condo and consider the HOA dues as cheap rent. While the HOA can just foreclose on the property and collect their dues from the proceeds of the sale, I have seen occasions where the HOA will simply sue the former home owner for the dues that accrued after filing bankruptcy.
- Find a Tenant: Hey, why not?! If the bank won’t foreclose, rent the place out for cheap to cover maintenance, insurance, and HOA dues. You’ll probably be able to put a little money in your pocket at the end of every month as well.
- Live in the Home: If the bank is not foreclosing, why not just live in your old home until you are forced to move. Even with HOA dues, maintenance, and insurance, it will still be cheaper than paying rent somewhere else.
- Donate Your Home: Quitclaim your home to someone in need. You’ll need their consent, but if you absolutely do not want to live in your home and cannot stand the thought of being a landlord, find a charity or someone who is willing to pay a minimal amount each month for the use of the property. Just be up front and let whomever you deal with know that this is a short-term solution to their problems, as the bank will eventually foreclose.
- Can I Quitclaim It to the Bank? No, not without their consent. This is not a complete transfer and will not absolve your liability taxes or HOA dues on the property.
- Pay the Taxes….Maybe: While you are still technically liable for the taxes that accrue after you file bankruptcy, it doesn’t always make the most financial sense to pay them. The taxing authority will eventually schedule a tax sale for the property, and at that point, the bank will step in and pay the taxes for you. and I’ve never seen either a taxing authority or a bank sue a former debtor for taxes owed on a property. It’s a risk, but a calculated one. Ultimately, the decision, as with all of this, is up to you.