A debtor may not require a secured creditor to take title to surrendered property. However, the creditor’s failure to object to the transfer of title may be construed as acceptance of the deed. In re Rose, No. 12-40743 (Bankr. W. D. N.C. July 8, 2014). The issue came before the court on the debtors’ motion to quitclaim the deed to their residence to the mortgagee, Small Business Association (SBA).
The court first determined that there was no provision in the Bankruptcy Code permitting a debtor to quitclaim surrendered residential property to the secured creditor against the creditor’s will.
Section 1325(a)(5)(C), which permits surrender of property, is a relinquishment of property not an imposition of an obligation to take possession. Citing See Pratt v. Gen. Motors Acceptance Corp. (In re Pratt), 462 F.3d 14, 18-19 (1st Cir. 2006); Canning v. Beneficial Main, Inc. et al. (In re Canning), 442 B.R. 165 (D. Me. 2011); In re Arsenault, 456 B.R. 627 (Bankr. D. Ga. 2011) [NCBRC blog]. But see In re Perry, No. 12-01633-8-RDD, 2012 WL 4795675, at *2 (Bankr. E.D. N.C. Oct. 9, 2012) [NCBRC blog]; In re Williams, No. 10-06243-8-SWH (Bankr. E.D. N.C. Jan. 30, 2014) (unpublished opinions requiring transfer of title where creditors did not take part in litigation).
Section 1322(b)(9) is likewise unavailing. That section contemplates vesting of a property interest in a third party but does not permit the debtor to impose that interest on an unwilling recipient. Contra In re Rosa, 495 B.R. 522 (Bankr. D. Haw. 2013) (cited by court as only case finding that this section requires a creditor to accept title).
Finally, section 105(a) does not permit a bankruptcy court to exercise its equitable power to create a substantive right or obligation not found in the Code. Citing In re Landbank Equity Corp. 973 F.2d 265, 271 (4th Cir. 1992).
Having found that federal law does not create a requirement that a creditor take title to surrendered property, the court turned to applicable state law (in this case Florida), finding that Florida law cannot be used to compel a creditor to foreclose or accept title to property.
The court found that from a practical standpoint, forcing a creditor to take title of surrendered property would “open a Pandora’s Box” of evils including requiring the creditor to take on obligations for which it did not contract. Quitclaiming property to a senior creditor alters its position with respect to other creditors, as a quitclaim deed would require it to take title subject to other liens. It may also saddle the lienholder with obligations attached to the property such as those caused by environmental contamination. Foreclosure, on the other hand, maintains the priority of debts by permitting the senior lienholder to recover ahead of other lienholders.
Nonetheless, the court found a way that the debtors could obtain the sought for relief. Florida law permits a quitclaim deed to a secured creditor if that creditor does not object. The court then inquired into what constitutes “acceptance” for purposes of transferring a deed. Turning to the facts of the case before it, the court noted that the SBA, while refusing to affirmatively take possession or foreclose on the property, had been otherwise silent as to its intentions with respect to the possibility of acceptance of a quitclaim deed. The court found that “[s]uch indifference comes very close to supporting a presumption of acceptance under the aforementioned authorities.” Thus, the court denied the debtors’ motion to force acceptance of a quitclaim deed, but did authorize the debtors to forward the deed to the SBA. The SBA was then given sixty days to 1) accept and record the deed, 2) reject the deed, or 3) initiate foreclosure proceedings. If the SBA fails to take any of these steps the court would permit the debtors to record the deed according to Florida law and transfer the property to the SBA.
Tags: surrender of collateral
