Whether or not someone who files bankruptcy also needs to do a quitclaim deed or deed in lieu of foreclosure is a question that many bankruptcy attorneys and clients are asking themselves these days. A few years ago, most banks and mortgage companies (we will call them banks for this blog) foreclosed on a property – house or land – within three to four months of the bankruptcy filing. At the foreclosure sale, the bank would pay the property taxes on the house as well as any homeowner association liens on the property. For many people, that is now considered the “good ole’ days”.
With the depressed economy and the increase in foreclosures, banks are taking considerably longer to foreclose on properties. There are statistics that indicate it is taking an average of six months for banks to foreclose in North Carolina; however, in some cases, it is taking two years or more for them to sell the house or land at foreclosure. If you want to continue living in the house until the bank forecloses, then that timeframe may be wonderful news! Unfortunately, if you have already moved out of the house, the lengthy foreclosure process can be both annoying and costly.
Because of the lengthy process, bankruptcy clients are receiving notices of delinquent city/county taxes as well as membership association or HOA dues. (For this blog, we will use the generic term of “HOA dues”. This can be a traditional neighborhood homeowners association, condominium association, cooperative association, etc. It is also important to note that the “dues” for this blog encompass dues, assessments and fees.) With the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (known as BAPCPA and a few other names that can’t be written), 11 U.S.C. § 523(a)(16) holds bankruptcy clients responsible for HOA dues that become due and payable from the date after the bankruptcy filing until the property is foreclosed on by the bank, sold to a third party, conveyed with a deed in lieu of foreclosure or a quit claim deed. As a result, even if the house is surrendered in bankruptcy and you have moved out of the house, you may be responsible for the HOA dues until the bank forecloses. In some high-end neighborhoods as well as condominium and townhouses neighborhoods, the HOA cost can be expensive. This part of the bankruptcy code does not seem fair, but many HOA have started taking advantage of this language since they are tired of waiting on the bank to pay the HOA dues, conduct normal maintenance on the property, etc.
As a result, many bankruptcy attorneys are suggesting their clients consider a quit claim deed or possibly a deed in lieu of foreclosure. This will transfer the property out of the bankruptcy client’s name and in most cases eliminate the debtor’s responsibility for the taxes and HOA dues. The quit claim deed literally transfers the property form the existing homeowners to another party, e.g. the bank or HOA. There is no guarantee with this deed, so the homeowner would be transferring HOA liens, other mortgage liens, judgment liens, etc. with the property. Some bankruptcy attorneys will assist clients with the quit claim deed, but there is usually an additional fee for these services. Other bankruptcy attorneys will recommend you speak with a real estate attorney that will prepare the quit claim deed, file it with the register of deeds and serve it on the appropriate parties. You may also want to consider a deed in lieu of foreclosure to expedite the process. The deed in lieu is prepared by the bank and/or their attorney. There may be ramifications on your credit if you complete a deed in lieu of foreclosure, so you would want to discuss this approach prior to signing any documents.
Regardless, you should not take any action until you after you speak with your bankruptcy attorney. In some cases, it may be beneficial for you to consider one of these options prior to your bankruptcy filing, but in other cases it is beneficial to wait until after the bankruptcy has been discharged and a final decree issued.
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I have a question, if you dont mind , i am considering getting involved with some quik claims ,is it legal to give the forclosee an insentive when i resell the house so that when they sign the house to myself , they can expect something back when it sells obviously these folks would need some cash or other to get back to get on there feet again,thank you for your time, savino