5th DCA Holds Surrender In Bankruptcy and You Forfeit The Right To Defend Foreclosure

The 5th DCA decently dismissed an appeal by a borrower after the borrower admitted that borrower stated their intent to surrender the property in the bankruptcy case; and thus waved any further right to defend foreclosure.  Opinion here.

The borrower filed for bankruptcy while his appeal of the foreclosure action was still pending in state court.   The 5th DCA keyed on the point that the bankruptcy court entered an order confirming the debt and the borrower’s surrender of the property.   Citing a recent bankruptcy court ruling from the Middle District of Florida Bankrutcy Court with a similar holding (In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015), the appeal was dismissed.

The 5th DCA held that in bankruptcy “the term ‘surrender’ means that a debtor must relinquish secured property and make it available to the secured creditor by refraining from taking any overt act that impedes a secured creditor’s ability to foreclose its interest in secured property.”

The 5th DCA found that the borrower’s “actions and the orders of the bankruptcy court have fully resolved this matter.”

This ruling is in stark contrast to a recent Southern District of Florida Bankruptcy Miami Division ruling by Judge Isicoff which found that “c]ompulsory surrender of real property collateral by a debtor to a lienholder in chapter 7 is not supported by, and indeed ignores, the express provisions of the Bankruptcy Code.”.  Opinion here.

Judge Isicoff, refusing to follow the other rulings finding that a surrender meant that borrower forfeited the right to defend the underlying foreclosure action, held that because “[t]hat result is what the Bankruptcy Code provides, and any modification to that result is up to Congress, not the courts”, a chapter 7 debtor who “indicates surrender of real property in his statement of intention is not obligated to surrender that property to the lienholder, whether or not the property is administered by the chapter 7 trustee. Compulsory surrender of real property collateral by a debtor to a lienholder in chapter 7 is not supported by, and indeed ignores the express provisions of the Bankruptcy Code.”

Foreclosure cases with bankruptcy components are very fact and area specific.  Please contact us to discuss the facts of your case today.

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