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4 January 2016
 January 4, 2016

Appeals Court Order Could Hamper Future Foreclosure DefenseA recent ruling handed down by the District Court for the Southern District of Florida could have far-reaching effects in U.S. bankruptcy proceedings if other courts follow suit in similar cases. The first-of-its-kind ruling could hamper future attempts to defend against foreclosure in a chapter 7 bankruptcy proceeding.

The case in question, Failla v. Citibank, arose when a Florida couple involved in bankruptcy proceedings attempted to defend themselves against a foreclosure lawsuit filed by their mortgage lender. The couple had originally agreed to surrender their property under the bankruptcy plan but then decided to defend against the foreclosure after the bankruptcy trustee abandoned the property. Attorneys for the couple maintained that rights to the property reverted to the couple as a result of trustee abandoned. The appeals court disagreed.

The court found that the couple’s original surrender of the property transferred all rights to the property to the bankruptcy trustee. The fact that the trustee abandoned the property does not change the fact that the couple no longer has rights to it. Therefore, the couple has been ordered to stop defending in the foreclosure lawsuit effective immediately.

In the original case decided in 2014, the court reached the same conclusion: the couple no longer had absolute rights to their property after having agreed to surrender it in their bankruptcy proceeding. Defending against foreclosure constituted a violation of the bankruptcy agreement and could, in effect, result in a judgment of fraud against the couple that would put their entire bankruptcy case in jeopardy.

A number of similar cases are now working their way through Florida courts. If those decisions are analogous to the one reached in Failla v. Citibank, the 11th Circuit could be called on to hear appeals. Similar decisions on appeal would create a precedent that would likely have an effect on bankruptcy and foreclosure throughout the United States.

Primary Residences and Personal Bankruptcy

Court cases involving repossession are not unusual for people involved in bankruptcy proceedings. Bankruptcy law does not allow courts to seize properties that are considered primary residences in most instances. However, mortgage debt also cannot be discharged either. The only thing a bankruptcy proceeding can do is prevent a mortgage lender from continuing collection efforts on past balances. Property owners still have an obligation to continue paying on their mortgages according to their mortgage contracts.

In light of this, it is also not uncommon to see people in the midst of chapter 7 bankruptcy looking for ways to hold off foreclosure proceedings. The truth is that most people wait too long to address the financial problems that eventually lead to bankruptcy. By the time bankruptcy becomes the only option, they may be substantially behind on mortgage payments.

If you are facing foreclosure of your home along with other mounting financial problems, bankruptcy may be used as a tool to stop foreclosure from taking place. But it does not erase the problem entirely. You will still have a financial obligation to your mortgage lender if you want to retain ownership of your property.

Our team of experienced attorneys can explain how all of this works in relation to your case. Feel free to contact us to request a consultation. If bankruptcy can help you, we will advise you on how to proceed correctly. Our bankruptcy team has the experience and knowledge you need to resolve your financial problems.

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