I recently met with a young lady who had filed a Chapter 7 bankruptcy 4 years ago in another state and surrendered her condo as part of the bankruptcy. She then moved to Virginia and thought she was completely free of the condo. Then she received notice that she was being sued by the condo association for 3 and half years of condo fees. When she came to see me, I had to tell her that the surrender of her condo did not free her from all financial obligations on it.
When property is surrendered in bankruptcy, it doesn’t automatically transfer the property to the mortgage holder. All that it means is that mortgage holder has the right to foreclose on the property under the state’s laws. The mortgage holder does not become the owner until.they have completed the foreclosure process. The foreclosure is what transfers the property from the owner to a new owner.
In my client's case, she remained the owner–even though she had moved out of the property. Since the mortgage company had taken its own sweet time in foreclosing, she was still the owner, and remaining the owner had big implications.
Since this was a condo, there was HOA or condo fees, as the owner she was responsible for them until the mortgage company foreclosed–the bankruptcy only wipes out the fees that were due before your case was filed. If the HOA or condo or municipality required the owner to maintain the outside of the property like keeping the law mown, and she didn't, she could be charged for it. If the property deteriorates, the municipality might condemn the property and could even tear it down as a safety hazard…and charge her for it. If someone slips on an icy walkway, as the owner, she would have been responsible.
For my client, the mortgage company finally foreclosed on the condo, over 3 years after she surrendered it in her bankruptcy. She is now having to file a Chapter 13 bankruptcy to deal with the condo association fees that came due after her Chapter 7 bankruptcy. She is not alone. I have had several other clients who have found out months and even years after they "surrendered" their property in a bankruptcy, that the mortgage company has not foreclosed on the property yet.
I always recommend that stay in the property until the foreclosure sale is complete. By staying in the property, you save yourself rent payments and can maintain the property. Even if you have to pay condo association of HOA fees, these will be far less than what you would have to pay for rent somewhere else. You will have time after the foreclosure sale to find a new place to live and you may be able to save some money to make a large security deposit on a new place. If you are unable to stay in the home, you should consider renting out the property for enough to cover the insurance and any condo or HOA dues and require the renter to maintain the property.