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Forfeit Your Foreclosure Defense In Bankruptcy Court

In early October 2014, the Eleventh Circuit Court of Appeals in Atlanta, GA (which governs bankruptcy cases in Florida too), decided the case of Failla v. Citibank N.A. The Court held that debtors who “surrender” their house in a bankruptcy case may not later oppose a foreclosure action against that house in state court.

In 2011, Mr. and Mrs. Failla filed bankruptcy in South Florida. In their schedules, the Faillas agreed to surrender their home and discharge their mortgage debt. However, the debtors continued to oppose their state court foreclosure case, so the lender filed a motion to compel surrender in the bankruptcy court. The Court granted the motion and the case was ultimately appealed up to the Eleventh Circuit.

The Court analyzed the bankruptcy code and determined that the word “surrender” should be given its plain meaning and requires that the debtor relinquish all rights to the property, even if the relinquishment does not result in immediate possession of the property to the trustee or the creditor. The Court then held that “When the debtors act to preserve their rights to property by way of adversarial litigation they have not relinquished all of their legal rights to the property.” The Court reasoned that the foreclosure lawsuit was necessary to determine the lien priority of the first mortgage, second mortgage, judgment liens, IRS liens, Homeowner or Condo Association liens, etc., or the rights to surplus if the foreclosure sale price exceeds the mortgage balance.

The Faillas also argued that the bankruptcy court lacked the authority to order them to stop defending a lawsuit pending in a different court – the state court. The Court quickly shot down this argument, reasoning that the bankruptcy court does have the authority to order the debtors to refrain from taking any action, or at a minimum had the authority to take other punitive action against the debtor, like revoking their disharge.

For more information on bankruptcy or foreclosure defense, please subscribe to the Crushing Debt Podcast, on iTunes, Stitcher and GooglePlay. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at shawn@yesnerlaw.com.

Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.

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