Citibank Wins Florida Foreclosure Bankruptcy Appeal.

The U.S Court of Appeals for the Eleventh Circuit has ruled that a debtor who elects to “surrender” a property in bankruptcy may not oppose a foreclosure action on the same property in state court. According to the Court, to “surrender” a property under the Bankruptcy Code, 11 U.S.C. § 521(a)(2), requires that a debtor relinquish his or her right to possess the property.

The Court asserted that section 521(a)(2) of the Bankruptcy Code requires debtors who file a statement of intent to surrender to actually surrender the property both to the trustee and the creditor. Even if the trustee abandons the property, the debtor’s duty to surrender the property to the creditor remains.

The Court determined that the “contextually appropriate meaning of surrender” is the “giving up of a right or claim.” As a result, a debtor who surrenders property can no longer contest a foreclosure action on that property because when the debtor acts to preserve rights to the property through adversarial litigation, he has not relinquished his legal rights to the property. Further, the Court held that Section 521(a)(2) requires a debtor to redeem, reaffirm, or surrender collateral to the creditor and that once the debtor chooses to surrender, he must act in accordance with the surrender and drop his opposition to the creditor’s subsequent foreclosure action.

Finally, the Court affirmed the authority of the bankruptcy court to order the debtor to stop opposing the state court foreclosure action.

CASE SUMMARY: Failla v. Citibank N.A., 11th Cir., No. 15-cv-15626, 10/4/16

What This Ruling Means:

  • When a debtor surrenders a property in bankruptcy, the property is surrendered to both the trustee and the creditor. Therefore, the debtor may not subsequently oppose a foreclosure action on the property in state court.
  • The court is taking a hard stance against the increasing number of debtors who have taken advantage of state and federal judicial systems by asserting different defenses to each court.

For more information on this legal update or any other legislative matters, please contact your dedicated ALAW attorney lead or Stuart Smith. 
Stuart  M. Smith
Partner, Foreclosure Litigation
[email protected]