Do you recall the episode of “60 Minutes” from about
5 years ago when the mortgage crisis was rolling to a full boil? It was the
episode in which the reporters interviewed a number of homeowners who had
decided to “walk away” from their overleveraged homes. They made it sound as if
walking away from their home and their outstanding debt was a viable option.
The “60 Minutes” reporters said nothing to make it sound as if “walking away”
was not a reasonable alternative.
Like you, I sat there screaming at the TV yelling “What about the obligations
under the note???!!!”
Turns out we were right. In the February 11, 2013 edition
of Massachusetts Lawyers Weekly you can read about In Re: Canning, Ralph G. III, et al, Lawyers Weekly No 01-034-13; a Chapter 7 Bankruptcy case wherein the debtor
claimed that the mortgagee was being unreasonable in not releasing the lien on
their underwater home via foreclosure or otherwise taking title to the
residence. The Bankruptcy Court ruled that the lender has the “prerogative to
decide to accept or reject the surrendered collateral.” The debtor never
explained to the court exactly why a short sale or a settlement was out of the
question for them. “In fact, from the record available to [the court], it seems
that the Cannings employed a ‘take it or leave it’ approach to negotiating with
their mortgage lender…”
The Court also stated: “The Cannings 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
Cannings placed many of the burdens of dealing with an abandoned property on
their neighbors, their town and their city – in other words, on everyone but
them.”
Perhaps the Cannings were in desperate straits and
perhaps they deserve better circumstances. However, you can now report to your
clients (and to the know-it-alls at cocktail parties) that there is no legal
authority that gives a homeowner the right to walk away from their property and
their obligations, including filing bankruptcy.
PAUL F. ALPHEN, ESQUIRE
BALAS, ALPHEN & SANTOS, P.C.
