As mentioned in prior blog posts, some Chapter 7 bankruptcy debtors who intend to surrender and move out of their upside down homes are incurring personal liability for home related expenses incurred after their bankruptcy filing.
Chapter 7 bankruptcy discharges all debts incurred prior to the filing date. But, a homeowner who moves out of his home remains personally liable for any expenses incurred after the bankruptcy filing until the bank completes a foreclosure and takes legal title to the house. The main expense is HOA dues. Other expenses are special assessments, repairs, and some taxes. So, some of my Chapter 7 clients who have abandoned their home find themselves being sued by their HOA for dues and special assessment incurred between the dates of bankruptcy and the foreclosure sale.
A real estate investor proposed to me an alternative program that protects the Chapter 7 debtor. Prior to the debtor filing the bankruptcy, but after moving out of the house, the homeowner signs a deed transferring the title to the investor. The investor will rent the property to a third party until the time of foreclosure. The debtor will be protected from any liability for expenses after moving and transferring title. The investor will be responsible for all house related expenses including HOA dues, taxes, insurance, and repairs. The investor is betting the rental income will exceed the ownership expenses. The investor assumes the risk, and the Chapter 7 debtor avoids any surprise bills and lawsuits after his bankruptcy.
This investor said he is even willing to pay the homeowner some cash to assist with his moving expenses.