Foreclosure and Surrender in Bankruptcy
Yes, the bank will still foreclose on your house even after you surrender it in bankruptcy. Surrendering a home in bankruptcy eliminates the obligation to continue on with the mortgage and protects against a deficiency lawsuit. You can toss the keys back to the bank and walk away, no more mortgage, no liability for past due payments. However, before you start celebrating, be aware that no more mortgage doesn’t mean no more house.
The problem is that you still technically own the home even after it’s been surrendered.
This is where the foreclosure comes in.
Foreclosure Ends Ownership
In order for the bank to take ownership of the house and sell it, they’ll need to foreclose to clear title out of your name and put it into their name. After all, the bank can’t sell your property to recoup some of its losses until they rightfully own the home.
How Long Until the Bank Forecloses After Surrender?
How long until the bank forecloses after a surrender? It could be months or even a year. Anyone who has picked up a newspaper recently knows that foreclosures have hit an all time high. Banks simply can’t foreclose fast enough which has resulted in a significant foreclosure back log.
What About the HOA?
Despite surrendering your home, it will likely take awhile for title to clear out of your name. You’ll still be the legal owner for awhile. This creates a whole new set of issues, not least of which is the Homeowners’s Association. Unfortunately, while the bank is taking its sweet time foreclosing on your surrendered property, you’ll still be liable for HOA dues. Remember, it takes foreclosure for your legal title to be severed and since HOA dues accrue based on ownership, the invoices will keep coming regardless of the surrender and the bankruptcy. In fact, it’s not uncommon for a consumer to emerge from bankruptcy only to be met with a lawsuit from the HOA for post petition dues on a property that was given back to the bank.