Can I Force The Bank To Take Back My Home?
I have been asked this question more times than I can count. My answer is usually, "Unfortunately, no." That may be changing.
Last month, the United States Bankruptcy Court for the District of Hawai'i ruled that, in a Chapter 13 bankruptcy, a lender may be forced to take back a property. In In re Rosa, the debtor included language in her Chapter 13 plan stating that title to her home would vest in the lender upon confirmation of her plan.
The court noted that 11 U.S.C. Â§1322(b)(9) authorizes just such a provision. It states, "The plan may . . . provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity." The court further stated that "vesting" is not "surrender," which has a different effect in Chapter 13 cases. When a debtor seeks to surrender collateral to a creditor, it simply means that the debtor will make the collateral available to the creditor. It does not actually transfer any rights in the collateral. However, since Congress chose to use the word "vesting" in Â§1322(b)(9), it clearly intended for a transfer of title to take place.
The court then looked at whehter the plan could be confirmed with the vesting language. It determined that a creditor can accept such a plan, which would make the plan confirmable. A majority of courts hold that if a creditor does not object to a Chapter 13 plan, then the creditor has accepted the plan. However, a court can only infer acceptance when the creditor has adequate notice of the plan. This notice is usually accomplished via the Bankruptcy Noticing Center.
What this means for Illinois homeowners is that a Chapter 13 bankruptcy may be a useful tool when dealing with a bank that will not complete a foreclosure. Many homes in Chicago and the suburbs are in a foreclosure black hole. The bank does not advance its case, because it does not want to own the property. Since the bank has not completed the foreclosure, title to the property remains vested in the homeowner. This exposes the homeowner to property tax liability, fines assessed by the City of Chicago or other municipality, homeowner/condo association assessments, and other liability.
From a policy standpoint, using Chapter 13 plans to vest title in the bank should also be allowable. The Bankruptcy Code provides for it, and the entire point of bankruptcy is to give people a fresh financial start. If people remain tied to properties for years on end, and those properties are causing the debtor to continue to incur liability after the bankruptcy discharge, then there really hasn't been a fresh start. When judges discuss the meaning of statutes, they speak about Congressional intent -- literally what Congress wanted when it drafted the statute. This intent is to be honored and carried out by courts interepreting statutes.
A significant body of law talks about bankruptcy as a fresh start. It is a well-established principle. Allowing debtors to vest title in properties back in the bank honors Congress's intent that bankruptcy represent a fresh start. Additionally, it saves valuable resources -- banks don't need to go through the foreclosure process which costs them time and money. Fewer foreclosure lawsuits also reduces the burden on the state court system, which ultimately saves taxpayers money down the line. It is about as close to a win-win situation that one can come in our fractured real property system.
Don't shed a tear for the banks in this scenario. After all, their short-sighted cash grab is what got our economy into this mess. Their shell game of a mortgage management system (Hi, MERS) has undermined confidence in the chain of title to an uncountable number of homes.
When people ask me whether they can force the bank to take back their homes, I can now give them a qualified "maybe." Here's hoping that I can convert it to a yes in a year or two.