Insure Real Estate Until You Are No Longer Its Titled Owner
Keep Yourself Protected!
Bankruptcy is in nearly all cases a vastly more cost-effective and time-efficient means of walking away from a home than is a short sale in which homeowners must negotiate with and often pay off lenders to get their agreement on the sale and potentially suffer massive tax liabilities. It is certainly more effective than simply letting a house go to foreclosure, which, here in Michigan, can result in potentially huge "deficiency debts" to the mortgage-holding bank. However, the surrender of a home in bankruptcy, which requires no negotiation with creditors or banks, incurs no tax liability, and leaves you free from worry over collections for deficiencies owed does not instantly immunize a homeowner from all costs associated with the property. Until the home is, on the deed or title filed with the register of deeds for the county in which the home sits, no longer titled to the homeowner, the titled owner will want to protect him- or herself from liability or personal injury claims should someone be injured on the property, as well as from other claims.
Bankruptcy Will Not "Quit-Claim" Title of Surrendered Property
The surrender of a home in bankruptcy does not instantly hand the house back to the bank holding the mortgage. What a bankruptcy does is discharge the homeowner's legal obligation to make the monthly mortgage payment. Once the bankruptcy is filed, there is no longer any need to make a mortgage payment OR a property tax payment, since property taxes "run with the land" and will be paid by the bank after the post-bankruptcy foreclosure. In Michigan, there will, even after a bankruptcy surrender of the property, still be a foreclosure. The foreclosure process is the process by which a home is re-taken by the mortgage-holding bank and the title is transferred from the homeowner back to the bank. The bankruptcy process, which is a Federal legal mechanism, does not address this transfer: it is the law of the State of Michigan that speaks to the transfer of titles. The foreclosure process in Michigan consists of 90 or so days of noticing, a sheriff's sale, and a 6-12-month redemption period, during which time the homeowner remains in possession and on title for the home. Only after the expiration of the redemption period is a sheriff's deed filed with the county register stating that the homeowner is no longer the titled owner of the property.
Are You Insuring the House for the Bank's Benefit or Your Own?
Until the foreclosure process is fully completed, a post-bankruptcy homeowner will need to keep the property insured primarily for liability purposes in case someone injuries themselves on the property while they remain the titled owner, and they will need to keep it maintained according to whatever standards local municipal code in the city or township requires (grass-cutting, etc.). While it is important to protect the property itself to the extent required by your original mortgage contract to fend off any allegation of "waste" of the bank's collateral (meaning degradation or diminution of the value of the property), the thing you really need to avoid is being the target of a personal injury or negligence lawsuit should someone manage to injure themselves on the property in the period of time following the Chapter 7 bankruptcy or during or after the Chapter 13 bankruptcy (a longer process). Generally, when you are properly insured, the homeowners insurance policy indemnifies you for damages claimed in such suits, and the insurance company will step in to defend the lawsuit. Without insurance, you are on your own.
Keep Paying Homeowners Insurance After Surrender in Bankruptcy: The Bottom-Line?
So long as the homeowner "owns" the house in title, it is the homeowner's responsibility to keep the property---and themselves---protected. Even after a surrender in bankruptcy, banks in Michigan and particularly in Detroit have been notoriously slow in processing foreclosures. You may surrender your home in a Chapter 7 or Chapter 13 and find yourself to still be living in it and owning 1 or 2 years after you receive your bankruptcy discharge. This leaves plenty of time for someone to injure themselves at your expense. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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