Tuesday, May 1, 2012

Home: Can The Trustee Take It?

As a bankruptcy attorney in Jacksonville, Florida, I practice in several areas of debt relief, including foreclosure defense.  The following blog is created with the intent of provoking discussion, addressing bankruptcy, Trustees, and the debtors wishing to retain their homes, when the mortgage is upside down.
So do you want to be in bankruptcy? Of course not. And if you are also having your house foreclosed on, you certainly don't want that either. So when you go to your local attorney, you are advised as to whether or not you should file bankruptcy, and what chapter you can file. You may also be advised as to whether or not you can keep your house. If you are looking to discharge you debts through bankruptcy, and upside down on your house (that is, your 1st mortgage is higher than the value of the real property), you may find this blog post interesting.

In Florida, there is reportedly a case where a debtor decided not to claim a homestead exemption on Schedule C of his bankruptcy paperwork, thereby allowing the debtor to claim a $4,000 wild card exemption; this is another way of saying the debtor can get though the bankruptcy and keep an extra $4,000 worth of property. The Trustee and the mortgagee came up with the bright idea of paying the Trustee to short sale the house. This would allow the mortgagee to foreclose on the house in a very efficient and timely manner, put some money in the Trustee's pocket, and avoid having to possibly fight a judicial foreclosure.

The problem with this lies with the duties of the Trustee, as the duties outlined in the bankruptcy code do not include the trustee acting as a foreclosure attorney. Another problem lies with the property itself. If there is no equity, is the property a bankruptcy asset. There is a very strong argument that can be made that the property, with no equity, is not an asset of the bankruptcy estate.

UPDATE:  The practice of at least one of the Trustees in the Jacksonville Division is to ask the bank to pay him to short sale the property.  This is possible if 1) the debtor does not claim the property as exempt homestead property, and 2) the bank agrees.  If you are filing the the Jacksonville Division, make sure you get the advise of an attorney before choosing to NOT claim your property as homestead.

A second case in Florida deals with the Trustee deciding to tell a debtor to get out of their house when the house is not claimed as exempt. Under the bankruptcy code, a trustee either has to administer the asset or abandon it. If the debtor simply moved out of the property, the debtor may be subject to fines and penalties for not maintaining the house. These fines and penalties would not be discharged in the bankruptcy because they occurred post petition. Of course, we still have the problem of whether or not the property is even property of the bankruptcy estate to begin with.

A third case deals with the trustee charging the debtor rent to stay in the house. That's right! The problem here is to some extent obvious; that's right, the house may not be a bankruptcy trust asset to begin with. But something you may not have though of is, does the Trustee really want to be a landlord, that is, they would be responsible to maintaining the property. As far as I know, the typical Trustee does not want to deal with landlord type problems; you know, the faucet leaks, the plumbing is stopped up, the grass need mowing, etc. It is also my understanding, in some jurisdictions, a landlord, or in this case perhaps a property manager, would need to be licensed by the state.

Should a Trustee be able to take a house with no equity? To what extent does the bankruptcy code require the trustee to maintain the asset? If you have any thoughts of enlightenment on this issue, please let me know below.

Other notable sites beginning with H:

Harassment by Creditors Southgate, Michigan Bankruptcy Attorney, Christopher McAvoy
Hardship Discharge Philadelphia Bankruptcy Lawyer, Kim Coleman
Hearing Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Home is Where the Heart Is San Francisco Bankruptcy Attorney, Jeena Cho
Homeowner's Association Dues Marin County Bankruptcy Attorney, Catherine Eranthe
Homestead Colorado Springs Bankruptcy Lawyer Bob Doig
Honest but Unfortunate Debtor Wisconsin Bankruptcy Lawyer, Bret Nason
Honesty Cleveland Area Bankruptcy Lawyer, Bill Balena
Honesty (and Fraud Avoidance) Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
House Northern California Bankruptcy Lawyer, Cathy Moran
House Los Angeles Bankruptcy Attorney, Mark J. Markus
Household New York Bankruptcy Lawyer, Jay S. Fleischman
Household Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein
Household Size Hilo Bankruptcy Attorney, Stuart T. Ing
How Much Is Your Home Worth? St. Clair Shores Michigan Bankruptcy Attorney Kurt OKeefe
Household Median Income Livonia, Michigan Bankruptcy Lawyer, Peter Behrmann
Hearings Birmingham Bankruptcy Attorney, Elizabeth Johnson
Hijacking Christine A. Wilton, Lakewood, Ca Bankruptcy Lawyer


  1. Hi. Just a quick note to let you know that I truly appreciated this post. I have been looking for this kind of information. Keep up the good work!
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  2. I don't know if you are the one that "thumbs-downed" my answer, but you are wrong. Wells Fargo and Union Bank place administrative holds on accounts even if the debtor does not owe them. Wells Fargo recently lost a major lawsuit over this practice

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  3. This comment has been removed by the author.

  4. Congratulations! This is the best thing, Thank you so much for taking the time to share such a nice information.
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  5. Now is the time to act and make a move regarding bankruptcy. Abiding the law is important specially in this issue. Bankruptcy really is a big problem we should settle. Find somebody that will help us regarding this matter.

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  6. It is also my understanding, in some jurisdictions, a landlord, or in this case perhaps a property manager, would need to be licensed by the state.

  7. Thank you for sharing. Filing for bankruptcy was once frowned upon and even embarrassing, now it has become more socially acceptable. Would you agree?

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  8. Thanks for the great insights on the matter. I feel that there is no right or wrong answer in situations like these. Thanks for sharing your perspective.

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  9. You are absolutely correct, there is no right or wrong answer. I recently came across a situation in one of my cases where the house is upside down, homestead was not claimed (allowing for the $4K wild card exemption), and the trustee threatened to administer the estate anyway. The Trustee claimed investors are interested in the property, and are willing to pay the Trustee $2K to purchase the property from the bankruptcy estate. Does this make sense? NO. But it caused the debtor to pay the trustee some money to repurchase assets from the bankruptcy estate equivalent to the amount the debtor would have paid had the debtor not claimed the $4K exemption.

    Do you think congress intended for a debtor to get into a poker game with the Trustee?

  10. This comment has been removed by the author.

    1. Thank you for the positive feedback. I hope you find it useful.

  11. I would like to know more on a bankruptcy trustee in Vancouver. I am new to this area and would like to learn more. Thank you for your informative post.

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  14. I need to study up more on the role of a bankruptcy trustee. It would be nice to know what they do in this whole process. I think knowing what they do can really help you understand how the whole legal process works.

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