Surrendering Rental Property

[greenthinker]

Hi Everyone,

We recently filed an amended plan to surrender a property that we own in Nevada. The trustee objected due to language in the amended plan that stated the property shall be surrendered "in full satisfaction of the debt", as well as failure of the attorney's office to provide additional supporting documentation. The judge subsequently denied the motion to approve our amended plan.

Immediately after the amended plan was denied by the court, the lender filed a motion for relief from stay, since we had not made any payments for several months. (We stopped making payments when we decided to surrender, but the attorney's office really dragged their feet in filing the amended plan.)

Does it make a difference if our plan is amended to surrender the property or if relief from stay is granted without amending our plan? Is the outcome ultimately the same? We are very concerned about the lender coming after us for a deficiency after the property is sold, since it is about $50K underwater.

Thank you!

[greenthinker]

After further research, it looks like we do want to follow through to amend our plan to surrender the property, rather than just let them foreclose after relief from stay is granted. Otherwise, the deficiency balance will not be discharged.

So, now my question is: Is it too late to amend our plan to surrender the property now that the lender has filed a motion for relief from stay?

Thank you!

[justbroke]

I thought I answered this, but I'm glad that you found out what happens where your plan does not surrender the property and subject the deficiency to being discharged.

Do you know if Washington has any laws regarding "purchase money" first mortgages? For example, California does not allow deficiency judgments on "purchase money" first mortgages.

In any event, the plan should always be modified where property is being disposed of while in Plan. The question really is about whether the Trustee or creditor will object. The creditor may just want their claim deemed unsecured so they can participate in the unsecured pool of money. Maybe the creditor will say nothing. There is no way to tell.

[greenthinker]

justbroke,

The property is in Nevada, where deficiency judgements are allowed in cases like ours where it's an investment property, and the mortgage was refinanced. Our attorney is preparing to re-file our amended plan, trying another way to insert language that will protect us from being liable for the deficiency balance. But, I think that there's a good chance that the trustee will object again. If that happens, I don't see any way to surrender this property without risking a $50K deficiency that we'll be on the hook for.

We may very well have to back away from surrendering this property, and then catch up on the payments through a modified plan or directly with the lender so that they don't proceed with foreclosure.

Thank you for your reply!

[justbroke]

The only thing the language needs to read is that the lender will "be allowed an unsecured claim and shall receive a pro rata share of the unsecured pool".

[greenthinker]

That would be ok in most cases, but I should have mentioned that we are paying back our allowed unsecured claims 100%. So, if the lender is allowed an unsecured claim for the deficiency, we would end up paying all of it.

[LadyInTheRed]

That would be ok in most cases, but I should have mentioned that we are paying back our allowed unsecured claims 100%. So, if the lender is
allowed an unsecured claim for the deficiency, we would end up paying all of it.

Not necessarily. If all of your disposable income is already going to the plan, then the addition of the mortgage as an unsecured claim would reduce the percentage of unsecured claims that get paid. If you have not been paying all of your disposable income to the plan, in order to surrender the property you may have to increase your plan payment so that by the end of the plan you pay an amount equal to all of your disposable income from your filing date or 100% of unsecured claims, whichever comes first.

[justbroke]

That would be ok in most cases, but I should have mentioned that we are paying back our allowed unsecured claims 100%. So, if the lender is allowed an unsecured claim for the deficiency, we would end up paying all of it.

Exactly as LITR wrote. Your payback is based on your DMI. If your DMI x 36 (or DMI x 60) is not enough to payback 100%, then you payback less. This is why we always tell people to not worry about what their payback percentage would be. You only worry about your budget and your DMI. How your DMI is applied to unsecured claims, is whatever it will be.