This is a problem across the country, in both Chapter 7 and Chapter 13 bankruptcy
cases when the debtor, my client, the person filing, WANTS to give up her house.
Lots of folks still cannot afford their mortgage payments, because their income went down, or the payment went up, or both.
No matter how many times I go through the explanation, some folks
still miss that simply filing Chapter 7 bankruptcy, and stating you want to give up the house, does NOT get your name off the deed.
In Michigan, where I practice bankruptcy law, as in most states, there s NO WAY to force a mortgage company to take title to a house on which they hold the mortgage.
In Chapter 13 bankruptcy, you keep all your property.
I filed a plan for clients who wanted to give up an empty condo. One of their children had lived there, could not afford it, and left.
My clients tried to sell it, worth less than what was owed. They tried to rent it, no luck.
So, we filed a plan which said we would surrender the house to the mortgage company.
BUT WE CANNOT MAKE THEM TAKE THE HOUSE BACK!
And, in this case, they still have not taken it, or tried to. Though we would just give it to them.
Going on five years now with NO payments.
Even if they signed a deed, putting the house in the mortgage company’s name, that deed is NOT effective unless the mortgage company accepts it.
In or out of bankruptcy, you can do a deed in lieu of foreclosure. If the mortgage company is willing.
It saves them the cost of, and time waiting for, a foreclosure. Of course, you have to leave the house, as you no longer own it.
With a short sale, in or out of bankruptcy, again, the mortgage company has to agree. In a short sale, they release their lien for less than you owe, to get some money out of the new buyer.
WHAT ABOUT JUST FILING CHAPTER 7 AND LEAVING MY HOUSE?
The home remains in your name.
If the property taxes are not paid, the government will eventually take title to the property. But that could take years.
A chapter 7 bankruptcy trustee only wants your home if he or she can sell it and get money for your creditors.
Obviously, this is not the case if you owe more than it is worth, the situation I normally see.
So, a bankruptcy discharge takes your name off the mortgage note, the debt, but NOT the deed, the ownership of the real estate.
You will still have responsibility for the property, and complying with city ordinances about snow removal, et cetera.
Sometimes mortgage companies just decide they do not want the expense of taking a house back and re-selling it.