After a statement of intention to surrender a homestead, the chapter 7 debtor must turn over possession to the mortgage-holder and may not oppose foreclosure, even if the trustee in the meantime has abandoned the property and title reverted to the debtor.
That was the teaching in a Nov. 23 decision by District Judge Kenneth A. Marra in West Palm Beach, Fla., upholding the bankruptcy court.
The debtors admitted that the mortgage debt exceeded the value of their home and stated their intention to surrender the property, which the trustee abandoned. Meanwhile, the bank initiated foreclosure.
The debtors contended that the trustee’s abandonment of the property gave them title again and restored their prepetition rights, including the ability to oppose foreclosure. Judge Marra agreed with the bankruptcy judge and disagreed with the debtors.
The question on appeal was whether the debtors fully discharged their obligations when they abandoned the property to the trustee. Judge Marra said they did not.
Although “surrender” is not defined in the Bankruptcy Code, Judge Marra said it means that the debtor abandons any interest in the property as to the trustee and a lienholder. Although the debtor is not required to deliver physical possession to the lender, Judge Marra held that the owner cannot “interfere with the secured creditor’s ability to obtain legal title to, and possession of, the property through legal means.”
Some might question Judge Marra’s next statement that “defending against a foreclosure proceeding relating to the secured property would be inconsistent with the debtor’s stated intention to surrender the property.”
Judge Marra concluded the opinion by holding that a trustee’s abandonment of a property only restores title to the bankrupt and “does not affect other aspects of the debtor’s rights and responsibilities relative to the property.”
The decision might also be questioned for its lack of exploration of the last clause in Section 521(a)(2)(B), which provides that a decision to surrender “shall [not] alter the debtor’s or the trustee’s rights with regard to such property.”