In re Failla recently came before the Eleventh Circuit, posing the question of whether a debtor who indicates in his bankruptcy that he surrenders his home can later oppose a foreclosure action. Upon the holding In re Failla’s, the Eleventh Circuit concluded that a debtor cannot later defend a foreclosure if he indicates in his bankruptcy that he will be surrendering the property.
In re Failla
In re Failla involved debtors who had defaulted on a mortgage held by Citibank secured by their home in Boca Raton in 2009. The couple later filed for Chapter 7 bankruptcy in 2011 and in their Statement of Intention indicated that they intended to surrender the home. The Chapter 7 trustee did not liquidate the property as the property did not have any equity which could be used for the benefit of creditors — at which point, the battle between Citibank and the debtors began.
When Citibank began the foreclosure process, the debtors contested the action with the Florida state court. In response, Citibank took the matter back to the bankruptcy court, requesting an order for the debtors to withdraw their contest because they indicated on the Statement of Intention that they intended to surrender the property. The bankruptcy court held in favor of Citibank, a ruling which was later supported on appeal to the District Court, leading the debtors to turn to the Eleventh Circuit in hopes of a different stance.
The Eleventh Circuit’s Position
In what is seemingly a win for lenders and mortgage servicers, the Eleventh Circuit delivered the latest ruling on the matter of foreclosure oppositions on surrendered property on October 4, 2016. Tasked with determining what “surrender” means under bankruptcy code 11 U.S.C. § 521(a)(2), as well what entity the debtors were required to surrender the home to in accordance with the Statement of Intention, the court’s opinion affirmed the previous rulings.
The Eleventh Circuit held that in surrendering the property to the bankruptcy trustee, the debtor also surrenders the property to the creditor under Section 521(a)(2). For this reason, if the trustee elects not to liquidate the property, the home is then surrendered to the creditor. The court also ruled that surrendering the home, while not a requirement to physically provide the creditor with said property, is still a relinquishment of any rights to it. Of this decision, the Eleventh Circuit asserted that one may not “have his cake and eat it too.”
This latest ruling is essential for bankruptcy filers to keep in mind throughout proceedings, as the surrendering of property on the Statement of Intention will mean that the debtor can no longer defend the foreclosure. Though this case concerned Chapter 7 in particular, it is likely that the same stance will be held in Chapter 11 and 13 bankruptcies.
If you have questions about an impending bankruptcy filing, call a West Palm Beach bankruptcy attorney at Kelley & Fulton for the expert guidance you need to achieve a favorable outcome.