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Abandoning Real Property in Bankruptcy

If You Are Abandoning Your Real Property

In these tough economic times with the housing market in a death spiral, a number of our clients are abandoning their real property.  Some stay until the foreclosure is complete and try to save the money they would otherwise pay in mortgage or rent if they moved (almost three years to complete a foreclosure in New Jersey the most recent reports indicate), while others move out and try to find a location with a lower cost of living.

After they move out,  I start to get telephone calls from those clients who have left their properties.  They call because the municipality has issued them a summons for failure to cut the grass, clear the snow or some other municipal or State code violation.  What should they do?

In New Jersey, there is a statute that was part of the New Jersey Creditor Responsibility Law which may be helpful.  That Statute NJSA 46:10B-51 says in part:

NJSA 46:10B-51

 b. If the owner of a residential property vacates or abandons any property on which a foreclosure proceeding has been initiated or if a residential property becomes vacant at any point subsequent to the creditor’s filing the summons and complaint in an action to foreclose on a mortgage against the subject property, but prior to vesting of title in the creditor or any other third party, and the property is found to be a nuisance or in violation of any applicable State or local code, the local police officer, municipal clerk, or other authorized municipal official shall notify the creditor, which shall have the responsibility to abate the nuisance or correct the violation in the same manner and to the same extent as the title owner of the property, to such standard or specification as may be required by State law or municipal ordinance.

    c. If the municipality expends public funds in order to abate a nuisance or correct a violation on a residential property in situations in which the creditor was given notice pursuant to the provisions of subsection b. of this section but failed to abate the nuisance or correct the violation as directed, the municipality shall have the same recourse against the creditor as it would have against the title owner of the property, including but not limited to the recourse provided under section 23 P.L.2003, c. 210 (c.55:19-100).

If you are going to be leaving your property and your lender has begun a foreclosure on it, give your creditor and the municipality (local building/housing code official and the police department), certified mail notice that you are advising that the property is now vacant and that you have abandoned it.  When writing to the police and the building code official, identify your lender, provide the Foreclosure Docket number of the foreclosure action, the address of your property, provide an address and a telephone number for your lender if possible.  Send the keys to the property to the foreclosing attorney’s attention (certified mail) and note in your correspondence to the municipal building code official who you sent the keys to.  All of these letters will be sent by certified mail.  You will keep copies of all of the letters you send and make a record of the certified mailing numbers.  If you know where you will be living, put that address on the return receipt card so you get back confirmation of delivery.  If you DO NOT do this, you will be issued citations for municipal and/or State code violations.

Under NJSA 46: 10B-51(b), if the lender has filed a foreclosure action, the lender becomes liable for any conditions that violate state or local code.  Before you go make sure the property is locked and secure.

 What else do you need to do if you are leaving your property? 

Keep your property insured!   You will need to keep homeowners insurance on the property until title to the property is changed.  If someone is injured on the property while you are the title owner, you will be sued.  If your lender has put insurance on the property because you let your policy lapsed (“forced-placed insurance”), that policy will not protect YOU if you are sued.  A forced-place policy will only cover the bricks and mortar if the property is damaged – that is all the lender is concerned about.  Your bankruptcy case, if already filed, will not relieve you of liability if someone is injured on your property.

Be certain that you have the post office forward your mail to your new address.  You will want to be certain that you receive all of your mail and ensure that you are noticed of anything and everything that may occur that effects you.  Get a kit from your local post office.

Contact you utility providers and have all of the utilities taken out of your name, get final readings and final billings.  “Winterize” the home.  Shut off your water at the main shutoff valve in your home and then open the water faucets to drain water from the system to prevent frozen and broken pipes.  Flush the toilets and get the water out of them as well.

I would recommend that after your have cleaned out your possessions from the home and removed all of your important records and papers, that you take some photographs of the home to document the condition in which you are leaving it.  Those photos may prove useful later.

 Do no damage to the property.  Leave all of the fixtures.  Fixtures are things that are permanently attached to the property, like stoves, ovens (any built in appliances), toilets, plumbing systems, electrical systems, etc.  Taking them may open you up to liability in the future.  If it was there when you bought the house, it’s probably a fixture and should stay with the house.

If you are required to pay homeowner association or condominium association charges take note.  The pre-petition charges are dischargeable.  The post-petition charges are dischargeable in a Chapter 13 bankruptcy case if you have left the property.  The post-petition charges are NOT dischargeable in a Chapter 7 bankruptcy case.  It is important that you get some sound legal advice to deal with this issue.

Absolutely do get sound legal advice from a bankruptcy attorney before you abandon your property.  Simply leaving your property does not mean that the legal and tax issues associated with the property end.  They do not.  Sometimes it is in your very best interest to stay in the property for the time being.  Get good legal advice before you leave your real property.