Bankruptcy doesn’t mean homeowners can neglect property

by Tracy Molnar on April 4, 2007

Property owners beware: As recently reported in the South Bend Tribune (permalink), according to a recent ruling by Bankruptcy Judge Harry Dees, real estate owners who file for bankruptcy are still responsible for taking care of their property unless the property is foreclosed.

Judge Dees ruled in favor of the City of South Bend against a former Elkhart woman who owned three investment properties in South Bend. One of her properties had several citations as a public nuisance, and the City took legal action to require repairs and clean up of the property.

The Judge agreed with the City’s argument that merely giving property back to the mortgage holder or to someone else does not relieve landowners of the obligation to keep the property presentable and in good repair.

Owner Ginger Phillips signed a quit claim deed surrendering her interest to Citifinancial Mortgage, the mortgage holder, but Citifinancial took no action.

“As a consequence, the mortgagor Phillips continues to be the owner of the property, with all rights and obligations,” Dees stated in his opinion. “The court finds, therefore, that the City properly enforced its property maintenance codes against the plaintiff, as owner of the property declared a public nuisance.”

The important point in this ruling is that while filing for bankruptcy generally stops all legal action against debtors, the law allows the city to maintain property or collect fees or fines for cleaning or repairs.

The South Bend Tribune article further “noted sometimes people believe owning rental properties will be a good investment but don’t always realize what the risks are.” One of those risks is being responsible for maintaining property, or paying fines or fees for cleanup, even if the owner is bankrupt.

For more information on how this could affect you, contact Stan Wruble, an attorney at Leone Halpin, LLP in South Bend at (574) 234-8050.


{ 1 comment… read it below or add one }

Tom Murphy February 24, 2009 at 6:23 pm

I’m sure Harry Dees was one of my best friends in High School. Is there a way to cantact him?

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