Citibank scored a legal victory with an appeals court ruling that debtors that surrendered property under the Bankruptcy Code did not have the right to oppose the bank’s foreclosure efforts.
According to a Bloomberg report, the Citibank case involved David and Donna Failla, who defaulted on their mortgage in 2009 and filed for bankruptcy two years later. Although the Faillas approved the surrender their house in order to discharge their mortgage debt, they challenged Citibank's foreclosure proceedings on the property. But both a bankruptcy court and a district court sided with Citibank.
Judge William Pryor of the U.S. Court of Appeals for the Eleventh Circuit wrote in a ruling that bankruptcy courts can order debtors that surrender their property under Section 521(a)(2) to drop their opposition to a foreclosure.
“Section 521(a)(2) requires a debtor to either redeem, reaffirm, or surrender collateral to the creditor,” Pryor stated. “Having chosen to surrender, the debtor must drop his opposition to the creditor’s subsequent foreclosure action … The bankruptcy court had the authority to compel the Faillas to fulfill their mandatory duty under section 521(a)(2) not to oppose the foreclosure action in state court.”
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