If you have moved recently to New Jersey and own or recently owned a house in the state you lived in before, and you are surrendering that home to the mortgage company, that house could possibly still be a source of significant problems. Those problems can continue after you thought that the house was foreclosed. Also, there are important issues to keep in mind even after you file a bankruptcy case to discharge (write off) any potential debts from that house.
You Own the House Until You Legally Don’t Own It
Walking away from a home before the mortgage company’s foreclosure has been completed leaves you open to various potential liabilities.
State laws differ but essentially a foreclosure process must be totally completed before the title to the property passes from your name to the foreclosing mortgage company’s name. Talk to an attorney to find out the legal status of your real estate. You might expect that mortgage companies would want to process their foreclosures quickly on a surrendered house so that they could take possession and sell the property and recoup whatever possible from the property to minimize their losses. However, they often delay foreclosures, and do so for countless reasons. The delays can last for many months, even possibly for years. In the meantime you are the title owner.
Your Potential Liabilities While Your Former House Is Still in Your Name
You could be held personally liable for a personal injury that might occur on the property. So you should maintain liability insurance there until it is no longer legally in your name.
You could well have an obligation on that property for any ongoing homeowner association fees—whether you have a condominium or any other kind of residence. You remain personally liable for those dues as long as you are the title owner. Indeed, this is one of the factors that mortgage company’s consider when deciding whether to put off foreclosing.
You could also be liable for utility bills, property taxes, municipal or county fees and such.
Aren’t These Obligations Paid by the Mortgage Company After It Forecloses?
Yes, usually obligations that have turned into liens of record on the property and which are not wiped out by the foreclosure—such as property taxes—are usually paid by the mortgage company. That way it has a clean title to sell to a buyer.
But that may not happen for quite a while. You are obligated for accruing obligations, in the meantime, such as ongoing homeowner association dues.
Furthermore, the mortgage company has no obligation to pay the debt on any liens which are “junior” to it, below it in legal priority. Its foreclosure will presumably wipe out these liens but not the debts owed. So you usually continue to be personally liable on those debts.
Aren’t Liabilities That Aren’t Paid Off by the Mortgage Company Written Off in Bankruptcy?
Yes, most debts related to a surrendered house that aren’t paid eventually by your mortgage company can usually be discharged in your subsequent bankruptcy case. Indeed that may be a major reason to file bankruptcy.
But there’s a very important consideration: bankruptcy can only discharge debts owed as of the day that your bankruptcy case is filed. It cannot discharge debts which are incurred after that date. So if your out-of-state house is still in your name, and is still incurring new debts—such as new utility bills, new local governmental penalties, or ongoing monthly homeowners association fees—the bankruptcy discharge you anticipate getting will NOT discharge those “future” debts. You will be liable for them in spite of your bankruptcy filing.
So you can see that it’s essential to determine if the foreclosure of your former house was completed, and that you are no longer on the title at the time that your bankruptcy case is filed.
To help with this, and with all the other decisions related to bankruptcy, if you live in New Jersey please call the Law Office of Andrew B. Finberg. We offer a free consultation meeting to discuss how to protect you from all your potential debts and liabilities. Please call us at (856) 208-4152 or use this form. We look forward to serving you.