CREDITOR’S REFUSAL TO FORECLOSE IS NOT VIOLATION OF DISCHARGE ( PART 2 )

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Beneficial replied that it was “unable to honor your request to release the lien until the lien balance is satisfied in the amount of $186,324.15. However, we could consider a settlement option or a short sale.” The letter also explained that the debtors’ account had been charged off; that they had no personal obligation to pay the lien balance, and that its letter was not an attempt to collect from them personally. The debtors replied by warning that an adversary complaint would be filed if the lender failed to either foreclose or release its lien. Beneficial did not change its position.

Debtors filed the adversary complaint against Beneficial arguing that creditor’s failure to foreclose or surrender its lien violated the discharge injunction by attempting to coerce payment of the discharged debt.

The court said that “pay in full” was not the only option offered to the debtors. Beneficial said it was willing to release its lien through either a settlement offer or a short sale. Thus, Beneficial did not intend to collect more than the collateral was worth. Moreover, the court said not only did the house have value, its value could increase. From the foregoing, we can see that the court is leaning towards Beneficial’s position. “Debtors invoke the ‘fresh start’ to indirectly validate the decision to abandon their residence. They do so without providing any evidence showing that the residence posed an undue burden upon them after their bankruptcy discharge. The debtors also fail to advance any legal authority, and we are not aware of any, to support the proposition that a homeowner may walk away, with no strings attached, from their legally owned residence. But even worse, in vacating their residence, the debtors placed many of the burdens of dealing with an abandoned property on their neighbors (the judge being one of them), their town, and their city – in other words, on everyone but them,” the court said.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.