CREDITOR’S REFUSAL TO FORECLOSE IS NOT VIOLATION OF DISCHARGE ( PART 1 )

Debtor walks away from his residence because it is under water with no equity whatsoever then files for Chapter 7 relief. The house is worth $300,000 but the mortgage owed is $400,000. Debtor obtains a discharge of all his debts including the mortgage. Six months post-discharge, debtor receives a real estate tax bill for $4,000 due April 15, 2013. The Los Angeles Treasurer’s bill states that the property is still owned by debtor. The bank has not foreclosed on the property; therefore, debtor still owns the property. Who is liable for the tax bill of $4,000? Answer: debtor is liable on the tax bill because he still owns the property. The discharge order wipes out all real estate taxes due before the bankruptcy case was filed. It does not discharge real estate taxes which come due after the bankruptcy was filed. Property owners are liable for the taxes on the property even if the mortgage is discharged and as long as they own the property! What is the bank doing by not foreclosing on the property despite discharge of the mortgage? It is avoiding liability for real estate taxes on the property.

But can debtor force creditor to foreclose by arguing that creditor’s refusal to foreclose is a violation of the discharge order?

In Re Canning v. Beneficial Maine Inc., the Chapter 7 debtors’ home was worth $130,000 subject to a mortgage held by Beneficial Maine Inc. for $186,521. Debtor’s statement of intention in his bankruptcy petition said that they will abandon their home. After they received a discharge in June 2009, Beneficial informed debtors that it would “not initiate and/or complete foreclosure proceedings on their home. You will retain ownership of the property” and “we will no longer advance any payments for taxes and insurances. You will be solely responsible for the payment of taxes, insurance, and maintenance of this property.” Debtors responded by reminding Beneficial that they had received a discharge, and demanding that the lender either “(a) immediately commence foreclosure proceedings or (2) immediately discharge the mortgage on the property.”

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