What are my responsibilities when surrendering a Chicago rental house to foreclosure subsequent to a Chapter 7 Bankruptcy?

Asked almost 2 years ago - Chicago, IL

I have stopped paying the mortgage, but have not yet received a foreclosure notice. The current renter is leaving in January or February. i have been told that I "own" the property even after the mortgage company does take possession, until they sell it, which may be a year or two. What are my responsibilities to the property? If I still own it, how long do I need to keep it insured? Should I rent it again after the renter leaves or board it up? My bankruptcy lawyer says to "just walk away," which sounds good, but I have a feeling that would backfire on me in some way. As I understand it, though, I am free of it once it is sold, since the bankruptcy has freed me of the loan.

Attorney answers (3)

  1. Adam J. Lysinski

    Pro

    Contributor Level 9

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    Answered . Presuming you complete your Chapter 7, you most of your debts prior to filing Chapter 7 (i.e. loan on the building) will be discharges and you will not have to pay them back, this I’m sure you heard from your attorney. However, so long as you have the title to the building (you are the owner of record), you are responsible for it. For example, just like you still have a right to collect the rent, you are still accountable to the municipality for possible code violations. Until the bank gets the title, you are the owner.

  2. David Lloyd Merrill

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    Contributor Level 15

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    Answered . There are simply not enough facts here to properly answer your question, as it is unclear whether you have received a discharge or whether you are in the midst of your bankruptcy case. Income received from a rental property is property of the estate that will have had to have been turned over to a trustee, which raises a question of whether the income was disclosed and turned over during the case. Ask your lawyer is this was properly done.

    As for your post-petition duties, you are responsible for any HOA dues post petition, and are liable for any casualty that may occur on the property. Keep it insured. As for renting it, I take a different view than my colleague: if your bankruptcy case is closed and both the property and the income derived from it were properly disclosed, renting it and collecting the income is fine -- so long as you disclose the fact that you are no longer paying the mortgage. My colleague is correct in that it is simply dirty pool to fool someone into thinking they will have a place to live for as long as they have a lease if it is likely that a bank will be removing them from the property at some point as part of a foreclosure process. However if you disclose this to the potential tenant, they may be willing to sign up for that possibility in exchange for a good deal on the rent. Have your lawyer include disclosure language in any lease you have anyone sign so that there is no question you full disclosed the situation.

  3. John P Fazzio III

    Pro

    Contributor Level 16

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    Lawyers agree

    Answered . Where you stand procedurally int he Bankruptcy is unclear. If you have a discharge of the underlying debt (which seems unlikely) then you may have a lot of different options. Ultimately, this is an investment property, and I am assuming that it is underwater, such that you are not going to benefit from a sale. Thus, your only option would be to re-let the property. Under the circumstances it would be unethical to do so, regardless of your legal rights, knowing that a foreclosure sale is pending. I would consult with a local foreclosure lawyer, but on balance I think your bankruptcy attorney is probably right.

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