Chief Bankruptcy Judge Laurel M. Isicoff of Miami declined to expand Failla v. Citibank NA (In re Failla), 838 F.3d 1170 (11th Cir. Oct. 4, 2016), the Eleventh Circuit opinion holding that a debtor who elects to surrender property cannot oppose foreclosure.
Facing foreclosure, a couple filed a chapter 7 petition in 2009 and indicated an intention to surrender their home. Never surrendering the property, they entered into loan modification negotiations with the holder of the mortgage. About a year after the debtors received their discharges, the lender voluntarily dismissed the foreclosure.
The parties never entered into a modification agreement, although the debtors evidently were making trial payments. The lender initiated a second foreclosure in 2016, about five years after dismissing the first foreclosure.
The debtors answered the foreclosure complaint and filed an action against the bank for alleged violation of the Fair Debt Collection Practices Act. The lender then filed a motion to reopen the 2009 bankruptcy and compel the debtors to surrender the property under the Failla doctrine.
Calling it “an easy case,” Judge Isicoff refused to reopen the bankruptcy in her July 24 opinion, saying there was “absolutely no basis under the Failla decision” to compel surrender. She said that “the Eleventh Circuit did not rule that a debtor’s decision to surrender lasted in perpetuity no matter what might occur subsequent to that decision.”
Judge Isicoff quoted the Eleventh Circuit as having held in Failla that a decision to surrender means that “the debtor has abandoned any interest or claim that he may have had to the property as against . . . any secured lender listed” with an undisputed lien.” She said it was, “at best, specious” for the lender to argue that the debtors’ decision to surrender “has any relevance whatsoever” to the second foreclosure seven years later.
Judge Isicoff had written in In re Elkouby, 561 B.R. 551 (Bankr. S.D. Fla. 2016), that a statement of intention to surrender a home does not compel a chapter 7 debtor to withdraw defenses to foreclosure. Her Elkouby decision was implicitly overruled by Failla. Before Failla, bankruptcy judges in Florida disagreed about the implications of a decision to surrender. Failla has not been followed universally. See, e.g., In re Ryan, 560 B.R. 339 (Bankr. D. Haw. Oct. 19 2016), by Bankruptcy Judge Robert J. Faris of Honolulu.
For ABI’s discussion of Failla, click here. For Ryan, click here.