Banks refusing to take property or lift lien after Ch 7

[DadTL]

We are in West TN (Memphis) and were discharged in Ch 7 BK in March of 2009. We had several rental properties that were included in the bk. Fast forward, all but 2 of the rental properties have been foreclosed. Both properties have a lien (2 different lenders) and neither will foreclose. They have written the properties off. They also refuse to lift the lien unless the entire amount owed is paid. Usually not an issue because the city or county would come in and take the property for back taxes and sell them. But wait, don't call yet, Memphis is now suing the property owners personally and placing judgments on their credit reports for the back taxes. So now we are being punished by the banks who refuse to take the properties or lift the lien without full payment. We used an attorney in our bk and I wanted him to go to court with me on the suit from the city, but he will not, not even returning my calls now. In doing some research on the ole innerweb, this is a national issue with no real recourse. There was a bill in planning to be introduced in Ohio (http://www.nakedcapitalism.com/2012/...roperties.html), but I haven't found if it was actually made into law. Has anyone found a way around this? At this point there is about 12k in back taxes and fees owed, but they will just continue to add up. I can't sell the properties because there is a lien on them. I have tried to sell them for only the back taxes through a quit claim, but the folks doing rentals are scared of the lien, and rightly so. I am thinking of calling some of my local politicians, but that process will be endlessly frustrating....

[DadTL]

Quick update, I just emailed my congressman. Will post his reply when I get one....

[pinkpeanut01]

Different beast, but since you haven't gotten any other replies, I'll add my somewhat-similar experience with a vehicle. CU refused to take it (charged off) or release the lien. It ended in us negotiating a settlement through an attorney for release of the lien. Like I said, I know it is different since cars aren't real estate and subject to property taxes, but in my case, it required cash to solve the situation and sell our junker. I hope you get somewhere with your Congressman. It certainly puts a damper on the "fresh start." Good luck.

[justbroke]

Real property is quite different from personal property (such as cars). The lien holder absolutely has no obligation to either foreclose or release the lien on real property. There have been many documented cases across the country where Judges refuse to perform a so-called reverse foreclosure - where the owner attempts to force a foreclosure. (A few HOAs have been successful in Florida, but that's a very special case.)

You will not be able to sell for "back taxes" through a Quit Claim (QC) because no one who does their research should ever take a property that has liens on it. When you transfer a property, you should transfer it with "clean" title and certainly with a Warranty Deed (WD) which a QC is certainly not.

The issue is not new at all. This is clear in the bankruptcy code and it is quite clear in caselaw when it comes to foreclosures. A bank writing off a debt has absolutely nothing to do with the collateral which secures the debt. If you had said that the bank issued a 1099-C (Forgiveness of Debt), that's an entirely different beast where the bank has ACTUALLY took the debt and the collateral off the books, but this does not appear to be the case.

Your only recourse would be to somehow get the County/State to sell (foreclose upon) the home for back taxes. I wish your attorney had told you from the start that all taxes that come due and owing AFTER you file bankruptcy, are your responsibility. The responsibility continues unless and until the home changes hands via foreclosure or other title actions.

I wish you the best of luck with this. I certainly would like to know how this works out.

(Florida tried to fix this slow foreclosure process by requiring foreclosing banks to pay the last 12 months of property taxes (or 1% of the value of the home, whichever is less), once the foreclosure actually happens. However, this has not motivated the banks and there are still homes that have been "in foreclosure" or not foreclosed upon, for years!)

[kornellred]

There ought to be a "sticky" which informs prospective bankruptcy filers that property with a lien on it - whether it be a vehicle, real estate, or other very valuable asset - will not automatically become the property of the debtor at the conclusion of the bankruptcy. Mortgages and secured loans are indeed discharged in bankruptcy, but all that means is that the debtor no longer has the obligation to pay the debt. Discharge of the debt does not mean that the lien holder no longer has an interest in the physical object for which it holds a lien. Bankruptcy does not magically invalidate a lien.

Liens are never "released". They are satisfied according to the lien holder's requirements - or not.

[jst4f]

We had a rental where the bank released the second mortgage lien but none are willing to release the first mortgage. Modifications on these rentals have gone through the slow-no process until we give up. Foreclosures have been slow to reach the final sale but it does happen. Those banks that impounded the taxes, continued to pay them but those where the taxes were ours to pay the banks did not continue to pay them and we had to pay them. The downside to all this has been the foreclosures appearing on our credit report long after the BK closed, which extends the period before we can get a mortgage.

[bcohen]

Do you still have access to the houses, or have the lenders taken possession/changed the locks? Are the houses still in livable condition?

If the answer to both of these questions is "yes" then maybe you should consider renting them out again, even if you can only get enough to cover the accruing taxes/penalties, and liability insurance.

[rdve]

+1 on bcohen's answer. Rent them on a month-to-month lease and get all you can out of them, especially to pay the taxes. I would think this puts the bank in a tough position, it is almost like they are abandoning the property to you if you are still paying the property tax. I would find a smart attorney, if you rent them for a year and pay the taxes, perhaps you might be able to get the property back debt free through creative construction on ownership??

At minimum, I would consider suing the bank for the taxes that you pay on "their" property.

[justbroke]

I wouldn't consider suing them as the suit would be frivolous. It is not the bank's property. I do like that some people have tried creative methods to have a home foreclosed upon. Specifically, I like the reverse foreclosure. However, I have only read where this worked in places where an HOA "forced" the bank to foreclose; and even in those circumstances, the lawsuits were very limited in number.

There is no "construction" on ownership. If you have a Deed and it is in your name, you are the owner. (North Carolina is a little more peculiar as most property is held via a Deed of Trust.)

I do like the prospect of simply just renting it month-to-month. If you are up for tenants and the headaches that come with them, but can make a decent amount to pay for aspirin and pay the upkeep... then I would jump in.

[jst4f]

FYI. We continued to rent out the properties as long as we could. Some banks put their own locks on the doors and we couldn't't rent them but the others we did. No tenant refused to pay because we were in foreclosure or BK. some tenants did have trouble dealing with month to month and the uncertainty of the foreclosure process, so they left. However, others were will to stick it out until the foreclosure was sold.

[justbroke]

If the bank changes the locks, you just re-key them (change them right back.

[jst4f]

We thought of that. These rentals were out of state and I didn't want anyone else doing it... just incase the bank reported it. Also I don't think a tenant would like the uncertainty of not knowing if their key would work that day. At some point you just cut your loses and move on and for us it was the bank changing the locks.

[justbroke]

I would agree with that!