Surrender – An Option for Cutting Off Liability for Post-Petition HOA Fees
12/1/2015
First published in the Oregon State Bar Debtor-Creditor Newsletter Vol. XXXIV, No. 1In re Watt, 520 BR 834 (Bankr D Or 2014)
Debtors Nicholas and Patricia Watts faced an alltoo-common problem in their bankruptcy case. Their principal residence was encumbered by multiple creditors and they were incurring ongoing postpetition Homeowners Association (HOA) fees. One of those creditors, Bank of New York (BONY), moved for relief from stay to foreclose on the property, but would not accept a deed in lieu or commit to foreclosing. The debtors vacated the property and made it available to BONY. However, simply surrendering property under §1325(a)(5)(C) to a secured creditor does not transfer title or stop the accrual of post-petition fees. As the court described, the inability to transfer title leaves debtors in a state of limbo.
To cut off postpetition HOA fees, the debtors proposed to vest title in BONY upon confirmation of their plan. Relying on §1322(b)(9) the plan specifically provided:
Upon entry of an Order Confirming . . . Plan, the property . . . shall be vested in The Bank of New York . . . . This vesting shall include all of Debtors [sic] legal and equitable rights. This vesting shall not merge or otherwise affect the extent, validity, or priority of any liens on the property.
520 BR at 835-36 (emphasis supplied). Section 1322(b) (9) states that a 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.” BONY objected and argued that the court needed its consent to transfer title. The court rejected that argument. Relying on well established rules of statutory construction, the court refused to read a consent requirement into §1322(b)(9). The court stressed that the debtors’ plan did not alter the extent, validity, or priority of the liens on the property. The debtors also satisfied §1325(a)(5) by opting to surrender the property.
Section 1322(b)(9) is not without limits. The court noted that confirmation could be denied on bad faith grounds if a debtor sought to use the vesting provision to avoid liability for nuisance or environmental issues associated with the property.
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