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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38912
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I filed a voluntary petition (Ch 7) now the morgage holder

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I filed a voluntary petition (Ch 7) now the morgage holder wants me to surrender the deed in lieu of foreclosure, should I do this. Also will the morgage company be required the forward the property taxes that were paid in escrow during the 1st seven months of this year.
I filed a voluntary petition (Ch 7) now the mortgage holder wants me to surrender the deed in lieu of foreclosure, should I do this.

A: If you are currently in Ch. 7, then you cannot give a deed in lieu of foreclosure, because at the moment, the bankruptcy trustee owns your property -- and only the trustee can decide whether or not to surrender the property to the mortgagee.

If the trustee will approve your giving a deed in lieu, then your next question is: If you relieve the mortgagee of the cost of a foreclosure (which is typically between $2,500 and $10,000), then what do you get from the mortgagee?

If your property has unpaid taxes or homeowners assessments, that cannot be discharged in bankruptcy, does the mortgagee agree to defend, indemnify, and hold you harmless from that liability?

Or, is this just you giving the mortgagee something valuable in exchange for nothing?

I don't know what's at risk, but if you have some nondischargeable obligation related to the property, then you may want to try to negotiate for indemnification from the mortgagee, before you let it go entirely.

Also will the mortgage company be required the forward the property taxes that were paid in escrow during the 1st seven months of this year.

A: Legally, the property tax impounds which are held in the escrow account are your property and must be turned over to the bankruptcy trustee, as a "preference" transaction. However, the mortgagee can claim that the impounds are "ordinary course of business transactions," and probably avoid the turnover, unless you have overpaid the taxes due into the impound account. Many times, the trustee will decide that it's too costly to try to force a turnover, unless there's a lot of money at state (at least $10,000). Regardless, it's up to the trustee to make this decision.

Please let me know if my answer is helpful, or if I can provide further clarification or assistance.

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