50 Ways To Surrender Your Property In Bankruptcy

With apologies to Paul Simon:

     You Just slip out the back, Jack
     Make a new plan, Stan
     You don’t need to be coy, Roy
     Just get yourself free
     Hop on the bus, Gus
     You don’t need to discuss much
     Just drop off the key, Lee
     And get yourself free
            50 Ways to Leave Your Lover

Until you get the property out of your name, you are still responsible for it, a fact recently pointed out by my colleague, Jay Fleischman.  You have to do something to get that property out of your name so you can walk away with peace of mind.  How do you do it?

As the song time suggests there are a myriad number of ways to transfer the title out of your name.  Maybe there aren’t 50 ways, but here are a few:

First, you can contact your lender to see if they would accept a Deed in Lieu of Foreclosure.  In this case, you would execute a deed transferring the property back to the lender.  Once recorded in the Land Records, you no longer own the property.  Some banks are offering a payment to homeowners to voluntarily leave their homes in a “Cash for Keys” program.  This saves the lender the time and expenses of foreclosing the property and physically putting you out on the street.  After all, time is money and in some ways, it is far cheaper to offer you money to move.  But most importantly, it takes ownership of the poreprty out of your name so you are no longer responsible for it.

Another way is a Short Sale.  A short sale is selling the priority to a third party for less than you owe.  This can be a long and difficult process because your lender will want proof of value, proof that the buyer is not related to you in any way and will insist on knowing exactly how much they will get out of the sale.  There are other details as well, like whether or not the lender is going to require some additional payment from you or whether they will allow deduction of the closing costs and attorneys fees out for he sale proceeds before they get their check.  Again, the most important part of this is that the property is transferred out of your name.

These first two steps can be taken either before or after a bankruptcy.  If after a bankruptcy discharge, you need to remember that you have discharged your debt to the lender so there is no need to pay the lender anything. But you can also use the bankruptcy process to enforce a surrender of the poperty to the lender.

In Chapter 13, this will be a component of your Plan.  Some jurisdictions allow surrender simply by saying so in the plan.  In other jurisdictions, several motions need to be filed first.  These might include a Motion to Determine the value of the secured interest.  This is important because if the lender’s debt is more than the value of the property, the lender may have a partially unsecured claim in your case which will need to be paid in the plan after surrender.  You would should include surrender language in you plan with a proposed instrument to be recorded giving up your ownership the property. Once all of this is approved by the Court, you can record the instrument eliminating your ownership in the property.  Poof!  Gone.

In Chapter 7, this can be a little trickier, but the Code provides that you must indicate your intention to redeem, reaffirm or surrender the property so it might be best to file a Motion indicating surrender and get the bankruptcy court to approve a deed or release transferring the property back the lender.  Again procedures will differ according to your jurisdiction.

There are others ways too, but “urban myths” of how this is done could get you into criminal trouble.  As always, it is important to consult a competent bankruptcy lawyer in your jurisdiction.

Thanks to Bankruptcy Law Network.

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This can be important to condo owners who owe home owner association dues. Even if they file bankruptcy, they continue to owe HOA dues until the title is out of their name. Sometimes lenders are slow to foreclose. Meanwhile the HOA can bill and sue the debtor for the HOA dues.