Burr & Forman

08.23.2017   |   Articles / Publications

Burr Alert: Eleventh Circuit Moves Toward Bright Line Rule That Debtors Cannot Retain Real Property Post- Discharge Without Reaffirming the Mortgage Debt

Last year, Burr & Forman lawyers won a decisive victory in the Eleventh Circuit, in the case of In re Failla, 838 F.3d 1170 (11th Cir. 2016). In Failla, the Eleventh Circuit held that a debtor who files a statement of intention to “surrender” his or her house in bankruptcy may not oppose the secured creditor’s foreclosure proceeding in state court. Failla is a significant victory for secured creditors for two primary reasons. First, the Eleventh Circuit interpreted the meaning of “surrender,” as used in 11 U.S.C. § 521(a)(2), and concluded that a debtor who says he will “surrender” collateral must relinquish his rights in the property, including the right to possess and use it and the right to defend a foreclosure proceeding. Second, while secured creditors can ask state court judges to enforce a debtor’s statement of intention to surrender through the doctrine of judicial estoppel, the Failla opinion confirms that secured creditors may also seek to reopen bankruptcy cases to compel a debtor
to surrender based, in part, on the bankruptcy court’s statutory authority to remedy abuses of the bankruptcy system. A more detailed discussion of the court’s legal analysis in Failla is available at burr.com by clicking here.

About a month after the Failla opinion was issued, Burr & Forman lawyers were again on the prevailing side of an Eleventh Circuit decision, in Jones v. CitiMortgage, Inc., 666 F. App’x 766 (11th Cir. 2016). In Jones, the debtor filed a statement of intention to reaffirm the secured debt on his home during bankruptcy, but a reaffirmation agreement was never actually filed. Years after the close of the bankruptcy case, the secured creditor began foreclosure proceedings, and the debtor subsequently sued the secured creditor to oppose the foreclosure process and to assert other related claims. The Eleventh Circuit affirmed, in part, the district court’s dismissal of the debtor’s claims by considering, among other factors, the debtor’s failure to actually reaffirm the mortgage debt in bankruptcy. The court reasoned that because the debtor did not reaffirm the secured debt or redeem the property in bankruptcy, “it does not appear he has any basis to challenge a foreclosure action.”  Jones v. CitiMortgage, Inc., 666 Fed. Appx. 766, 776–77 (11th Cir. 2016) (citing Failla). “Without reaffirming the debt or redeeming the collateral, the debtor has no right to retain the collateral, id. at 1516 (referencing Failla), though the debtor can continue to maintain mortgage payments on a principal residence after discharge without reaffirming the debt, and a creditor can take such payments rather than pursue an in rem foreclosure, see 11 U.S.C. § 524(j).” Id. at 770. Although this statement is arguably dicta, the Eleventh Circuit telegraphs in Jones its belief that a debtor loses the right to retain collateral and defend foreclosure, absent reaffirmation or redemption in bankruptcy.

Download the full article, “Burr Alert: Eleventh Circuit Moves Toward Bright Line Rule That Debtors Cannot Retain Real Property Post- Discharge Without Reaffirming the Mortgage Debt” written by Jonathan Sykes and Lauren Reynolds

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