The Eleventh Circuit resolved a split among Florida bankruptcy judges by ruling that a debtor who elects to “surrender” real property cannot oppose foreclosure. The opinion also implies that a debtor must give up possession and not force the lender to initiate eviction proceedings.
A husband and wife filed a “no asset” chapter 7 petition where they listed the mortgage on their home as valid, with mortgage debt exceeding the value of the home. They filed a statement of intention under Section 521(a)(2) to surrender the home. Since there was no equity, the trustee abandoned the home to the debtors.
The debtors opposed the lender’s foreclosure. Rather than litigate in the foreclosure court, the lender persuaded the bankruptcy judge to enjoin the debtors from opposing foreclosure. The bankruptcy judge also threatened to revoke the debtors’ discharges were they to persist. The district court affirmed.
The Eleventh Circuit affirmed in an opinion on Oct. 4 by Circuit Judge William Pryor.
Section 521(a)(2)(A) requires debtors to state their intention to retain, surrender or redeem property, or reaffirm the debt. Subsection (a)(2)(B) requires a debtor to “perform his intention” within 30 days.
Interpreting the “text and the context of the statute,” Judge Pryor said the debtors must surrender the property to both the trustee and the lender. If the trustee abandons the property, the debtor, he said, retains a duty to surrender the home to the lender.
Next, Judge Pryor decided what “surrender” means. It does not mean deliver possession, he said, because the Bankruptcy Code says “deliver” not “surrender” when the statute compels turning over possession.
The “context” of Section 521(a) shows that “surrender” means to give up a right or claim, according to Judge Pryor. The statutory language therefore means that debtors cannot oppose foreclosure.
Since the debtors conceded in their filings that the mortgage was valid and the lender had the right to foreclose, Judge Pryor said that enjoining them from opposing foreclosure was proper because they must “honor that declaration.”
The debtors also contended that the lender’s only remedy in bankruptcy court was to lift the stay and litigate in the foreclosure court.
Again, Judge Pryor agreed with the lender. He said bankruptcy courts have “broad powers” under Section 105(a) to remedy a violation of a debtor’s duties under Section 521(a).
The very first paragraph of the opinion says that an election to surrender means that “debtors relinquish their rights to possess the property.” The statement could be read to mean that debtors face sanctions if they force the lender to initiate eviction proceedings, even if they do not oppose foreclosure.
It remains to be seen whether the result will be the same if the facts are altered.
Suppose that the debtor states an intention to surrender, but only to the trustee, while listing the mortgage debt as disputed and scheduling a claim against the lender for an alleged defect in the loan or mortgage. Assuming the trustee abandons both the home itself and the claim against the lender, the debtor would not face the estoppel argument that underlaid part of Judge Pryor’s opinion.
On the other hand, Judge Pryor interpreted “surrender” not to mean “deliver possession.” However, Judge Pryor’s affirmation of the powers of bankruptcy courts implies that they have the ability to impose sanctions on debtors who do not voluntary surrender possession.
In Florida, Bankruptcy Judges Paul G. Hyman Jr., Eric P. Kimball and Michael G. Williamson held that a statement of intention to surrender a home bars a debtor from opposing foreclosure. District Judge Kenneth A. Marra in West Palm Beach upheld Judge Hyman in Failla. In February, Bankruptcy Judge Laurel M. Isicoff of Miami ruled in In re Elkouby that a statement of intention to surrender a home does not compel a chapter 7 debtor to withdraw defenses to foreclosure.
To read ABI’s write-up of the Failla decision in district court, click here. To read about Elkouby, click here.