Judge Olson on Surrender in Chapter 7 and Foreclosures

I represented the debtor in a case where  Judge Olson entered an important ruling of general interest to bankruptcy  attorneys and foreclosure attorneys in particular for Broward County including Fort Lauderdale bankruptcies and foreclosures.
The  state court foreclosing lender attempted to reopen a 2009 chapter 7 in which the debtor in her Statement of Intention stated her intent to surrender non-exempt real property.   The state court foreclosure, filed in 2009 with little activity for years,  had not yet been completed.
The issue of the meaning and enforcement of the Debtor’s Statement of Intention in a state court foreclosure has been brought in several bankruptcy cases throughout Florida.  Decisions are conflicting.
In  re Kourogenis,  Case No. 09-32936, DE 28, October 6,, 2015,  is the first bankruptcy court decision on this issue in Broward County as to chapter 7 cases.
Careful reading of the decision is critical.  The court did find that in this case laches, unfairly waiting too long,  barred relief to the lender.  But the key takeaway is that Judge Olson held that mortgage lenders should not come back to bankruptcy court to assist them in foreclosures. He used a judicial theory that makes a lot of sense in this context called judicial estoppel.
As I interpret the decision, the Statement of Intention does not create a bar to defending a foreclosure.  However, the state court may use its own discretion  based on a legal concept called “judicial estoppel” to determine the effect of the bankruptcy Statement of Intention.  Judge Olson reviewed  factors involved with judicial estoppel, but the decision is up to the state court. Essentially,  listing an intent to surrender the property is a factor the state court judge, in its discretion,  may use to prevent defenses to the foreclosure. (Judicial estoppel has to do with the effect in the new court case of something that transpired in the prior case.  The factors discussed should be reviewed carefully by attorneys.)
Note that Judge Hyman in West Palm Beach previously entered a decision which provided that attorneys can be sanctioned for defending a foreclsosure after “surrender” in the bankruptcy.
Kourogenis is a Chapter 7 case.  The lender is on stronger ground when the surrender is provided in a confirmed Chapter 13 Plan.
The issue of the meaning of surrender has been litigated across the country and these cases will continue to be heard by the courts.


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