What happens to a house that was surrendered in Ch 13 BK?

Question

This property that I am working to purchase is getting more and more complicated as it goes on. I hope someone has some insight! His bank has been hounding him for some time now and is close to filing a LP. That is why I posted here.

Long story short (as I can make it)... I am in the process of trying to buy a vacant rental property and the owner filed Chapter 13 BK in 2007 and it was discharged in 2012. Without getting into too much detail, I am beginning to think that the bank may have messed up. So my question is what exactly happens to a rental property house that was surrendered in Ch 13 BK. The Bank never pursued anything and 9 years later it is still in the owner's name. He has not made payments in 9 yrs and there is no LP on it.

The paperwork that Select Portfolio Servicing sent him has the wrong address. It's a weird property with two duplexes. The address they list IS on one of the duplexes, but it is not the legal address for that entire property. (Make sense?) And they are saying that his wife is not on the note, when his mortgage clearly states she is. The note has been sold several times and somewhere along the line this information has gotten mixed up.

The owner wants to sell to me and we are trying to see what our options are other than just a short sale.

He is also under the impression that he is protected from foreclosure because of a statute of limitations law. That states if a bank does not foreclose within 5 years, they lose the right to do so. But from the research I have done, a new law has since been put in place (just a few months ago) stating that subsequent foreclosures are allowed.

So my question to any lawyer or person who may be familiar with BK 13 laws. What are his legal rights? SPS is hounding him to pay and all this time he thought that they took it back. It is still in his name and has been vacant for 9 yrs. I did read somewhere where he is suppose to be protected from creditors who contact them for payment.

Any advice will be GREATLY appreciated! Trying to figure this all out. Thanks!

Wayne Brooks · Answer

Sure. You can send me a PM and we can chat. Most banks have their own specific forms, although many are common to all short sales.

Martha Blumel · Answer

Hey @Wayne Brooks, I see that you are a short sale specialist. After a couple weeks the owner has agreed to go with a short sale. I need to get my finances in order, but I was wondering if you can give me any advice on what else to do on my end.

I met with Warren at Title Trust Services a couple weeks ago and they gave me all the paperwork that needs to be filled out to get it started. I have so many questions concerning the process. I would love to speak with you further about possibly working together on this. Thanks!

Wayne Brooks · Answer

@Martha Blumel Not that it really matters, but the law wasn't rewritten, or changed. The 3rd DCA, getting in step with all the other district courts of appeal, reversed a couple of earlier erroneous decisions. They reaffirmed that a lender is Not barred from refilling a foreclosure, or filing an initial foreclosure, more than 5 years after original default/acceleration. The refiling of one after 5 years being prohibited, was the delusion that foreclosure defense attorneys were promoting in order to get more clients. A lot of investors have lost a lot of money betting on this delusion, through different strategies.

Martha Blumel · Answer

No, it definitely doesn't. I will have to explain this to him again.

Martha Blumel · Answer

@Wayne Brooks that is exactly what I was thinking about the QCD idea. But whoever this owner is getting his legal advice from is the one who told him about the SOL. I researched it last night and found that the law was rewritten. I have already discussed the short sale as being the only real option. He's just got to realize that the QCD is not going to be an option.

I'm learning a lot from this, that's for sure! Thank God for Bigger Pockets! You guys are the best.

Brett Goldsmith · Answer

Yeah, the QCD would just allow someone to take ownership, rent it out, and collect rent presumably.

It's a tactic used by some people but obviously that does not help in getting the property in an equitable position in this particular case.

Martha Blumel · Answer

Thanks @Brett Goldsmith. Yes, a short sale is the likely outcome. He just had someone approach him 5 months ago offering to pay him money for a QCD, which makes NO sense to me what so ever. After not paying for 9 years, he owes twice as much as it's worth and lord only knows how much his code violations are. So now he is telling me he'd be happy to do a QCD with me. Theoretically... that is great, but now his problem is my problem. Unless there is something I don't know. Which is most likely!

Brett Goldsmith · Answer

If the debt was discharged, why doesn't he just short sale it to you if he wants it out from under his name? I'm not an attorney and the below is not legal advice. Generally a ch 13 surrender means the debtor has no intention of keeping the home and they will let it be foreclosed on. Also if a BK is filed and debt is discharged on the home from my understanding creditors should not be trying to collect.

What happens to a house that was surrendered in Ch 13 BK?

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