On February 29, 2016, the United States Bankruptcy Court for the Southern District of Florida ruled that a borrower’s statement of intention to surrender real property does not preclude that borrower from later asserting a defense to a foreclosure proceeding if the bankruptcy trustee did not abandon the property to the lienholder. This decision departs from prior bankruptcy and district judge opinions, and expands the foreclosure defenses available to borrowers who indicate their intent to surrender property securing a mortgage loan in bankruptcy.

In In re Elkouby, the borrower filed a Chapter 7 bankruptcy during the pendency of foreclosure proceedings. The borrower’s bankruptcy filings included a statement of intention to surrender the real property, and she did not dispute the debt or claim the property as exempt. The bankruptcy trustee, however, did not administer the property. After the loan was discharged, the lienholder resumed foreclosure, but the debtor challenged the foreclosure. The lienholder moved to reopen the bankruptcy and to compel surrender. The court (Judge Laurel M. Isicoff) denied the motion. In issuing the ruling, Judge Isicoff recognized there is “an ongoing debate about the meaning of ‘surrender’ and what the consequences of surrender are.” Departing from other decisions, she reasoned that unless the borrower expressly abandons the property to the foreclosing lienholder (either by affirmative action or motion by the lienholder or by an order of the trustee), real property not administered by the bankruptcy trustee reverts back to the debtor at termination of bankruptcy proceedings. A lienholder may pursue lawful recourse, such as foreclosure, but the foreclosure may be challenged by the debtor. The Court noted that the special nature of Chapter 7 proceedings, which explicitly tasks the bankruptcy trustee with the right to distribute and dispose property, requires reversion back to the debtor absent administration.
This recent ruling appears to create a split in authority on a debtor’s ability to contest foreclosure proceedings where the borrower states an intention to surrender the property, and even surrenders the property in Chapter 7 bankruptcy proceedings.

In re Elkouby, Case No. 14-23934 (Bankr. S.D. Fla. Feb. 29, 2016)

Additional Resources: American Bankruptcy Institute- Rochelle’s Daily Wire: “Courts Split on Whether Surrender Entails Waiver of Defenses to Foreclosure