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CHAPTER 7 BANKRUPTCY BULLETIN
December 2017 Vol. IV
Note From the Editor
Selling Vacant and/or Abandoned Properties
Dear Reader, At this time of year, I’d like to wish you and your family
If you are a personal representative in charge of an abandoned property, it may be in your best interest to find a way to sell it. Selling an abandoned property is often difficult because of the location or the condition of the property. However, local governments put up obstacles beyond those in an attempt to control the neighborhood. They openly create disincentives for leaving the properties vacant and penalize those who let their properties fall into such a state of disrepair as to be a blight on the neighborhood. Although the reasons are understandable, it works against those who are trying to do the right thing and divest themselves of a property they truly don’t have the resources to care for. Some urban areas have a particularly large number of abandoned properties. Here are some examples of obstacles and incentives used by Washington, D.C., Maryland, and Virginia. Washington, D.C. Requiring an extra tax as a kind of punishment is considered experimental, as we don’t know yet the full impact of these measures. The D.C. Department of Consumer and Regulatory Affairs (DCRA) currently taxes vacant properties 5 percent extra, and they tax 10 percent extra if it is determined that those properties are blighted. The law allows for some exceptions, such as those owned by the federal government or that are under construction. There is an exception if the owner can prove that the property is on the market for rent or sale, with some qualifications, and a rarely granted exemption for financial hardship.
a happy, healthy, and joyous holiday season. If you have any topics
you’d like to see us write about in 2018, please let me know. Happy holidays!
the homeowner. There is confusion among homeowners about the qualifications and new legislation which will put the burden of proof on the homeowner to show that a property is even occupied. The new rules would also cut down time limits for some exemptions and penalize those who fail to list their unoccupied properties as being so. The law, as it stands, puts an impossible burden on DCRA for maintaining a list of properties, but it also adds in a rebate for those who comply with the regulations and then manage to fill their vacant properties within a year. Maryland Property taxes in Maryland are determined locally. Maryland offers a homestead exemption, and local jurisdictions offer some other tax incentives for occupied real estate property, although an investigation discovered that many vacant properties mistakenly get those credits. Strict rules about tax arrearages owed have contributed to the problem in Maryland, but a tax credit in Baltimore for taking over an abandoned property is a major incentive as it offers up to 100 percent reimbursement under certain conditions. Many local jurisdictions require owners to register vacant property, but the requirements are not as restrictive as those in D.C. For instance, many require a $50 fee, with registration occurring within 30 days of a foreclosure sale.
Yours truly, –Marc Cormier Editor/Realtor
Our real estate practice specializes in understanding the unique complexities of selling homes tied up in legal processes, whether that’s bankruptcy, divorce, or probate. The challenges of these types of filings don’t come just from the buyers and sellers, but also from creditors, spouses, heirs, the IRS, local tax authorities, local code enforcement, HOAs, and POA. If you value working with an agent who can avoid these pitfalls, someone you can feel confident will close the file, then give me a call or send an email: (301) 660-6272 , ext. 700 , or Cormier64@gmail.com .
These and other exemptions are subject to time limits, and they are subject to appeal by
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Brown v. Ellmann, No. 16-1967 (6th Cir. 2017) Background In 2014, a debtor filed a voluntary petition for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. At the time, the debtor owned real estate property located in Ypsilanti, Michigan, valued at $170,000. However, the home was also subject to secured mortgage claims by two separate creditors that totaled $219,000. Therefore, the debtor had no equity in the home at the time she filed for bankruptcy protection. In her initial petition, the debtor indicated her intention to surrender the property to the bankruptcy estate and did not claim an exemption for the value of her redemption rights to the property under Michigan law. The bankruptcy trustee sought the court’s permission to sell the property for $160,000 and distribute the proceeds from that sale among the debtor’s creditors and professionals involved in the sale of the property. The debtor objected to the trustee’s request and subsequently attempted to amend her original disclosures citing 11 U.S.C. 522(d) to include an exemption for the value of the redemption rights, worth approximately $23,000 pursuant to Mich. Comp. Laws 600.3240. The court granted the trustee’s request to sell and denied the debtor’s proposed exemption. The debtor appealed to the U.S. Court of Appeals for the Sixth Circuit. Arguments After rejecting two arguments made by the trustee challenging the court’s jurisdiction, the court analyzed the merits of the debtor’s appeal. In doing so, the Sixth Circuit reasoned that any exemption based on the value of redemption rights must attach to equity, which the debtor is entitled to after satisfaction of all secured liens on the property. In the case before the court, the debtor had no equity in the property. The debtor primarily relied on Law v. Siegel , 134 S. Ct. 1188 (2014) to convince the court to depart from the “no equity — no exemption” decision reached in a previous, unreported case (In re Baldridge 553 F. App’x at 599). The Sixth Circuit, however, did not find Law to be relevant. In that case, the bankruptcy court used its equitable powers to approve a trustee’s request to surcharge a debtor’s $75,000 undisputed homestead exemption as reimbursement for over $500,000 in fees related to an investigation into the debtor’s fraudulent conduct. In reversing the court’s approval of the request, the court pointed to the statute which “expressly and unconditionally states that exempt property was not liable for payment of any administrative expense.” The Sixth Circuit distinguished Law from the instant case by holding that Law was about “the extent of the bankruptcy court’s discretionary power under Section 105(a); this case addresses the bankruptcy court’s interpretation of a specific provision of the bankruptcy code.” Conclusion In the absence of authority contradicting the holding in Baldridge , the court chose to follow the “no equity — no exemption” rule stated in that case and affirmed the bankruptcy court’s denial of the debtor’s requested exemption.
YouHave a Fiduciary Responsibility toMake Sure the Property Is Insured Correctly
Anyone who has a property insured has a responsibility to make sure that property is insured the right way. For example, if the property is vacant or if it is rented out to someone else, the insurance requirements will be different than the standard requirements for homeowners insurance. Generally, leaving a property vacant for a few days is not a problem, but if the property is going to sit empty for more than 30 days, most insurance companies expect the owner to let them know the property’s status. That way, they can cover the home for the real risks it has, which are somewhat different when the property is empty or rented out than when it is used as a permanent home. Sometimes people miss this step, and that often happens when there is a trustee or personal representative taking care of an estate. They can forget to do this or not realize it needs to be done. Then, if there is a fire, or someone gets hurt on the property, or another kind of issue arises, the owner can be liable. The insurance company can also refuse to pay because the property was not correctly insured. That can lead to serious problems for a homeowner or for the estate of a person who has passed away and left their home to be settled as a part of their estate. For example, when a person dies, they may will their home to someone else. The deed to the house will need to go through probate, and during that time, the house is empty. If there is a fire during the period when the house still belongs to the previous owner but is vacant, the insurance company can deny the claim and refuse to pay because the house was not properly insured. That can be devastating for the estate. Fortunately, such circumstances are easily avoided by getting the proper coverage for the home. Virginia real estate property taxes are surprisingly low, although the taxes are still high because of the high property values. Residents can take advantage of homestead exemptions, both state and federal, for tax and bankruptcy purposes. Some local jurisdictions have enacted laws which penalize vacant property owners, although the effects are nominal compared to D.C.’s stricter policy. Charlottesville, for instance, has a requirement to register a vacant property within 365 days, and the fee is $25. ... Continued from front page
Michelle J. Adams, Esq. Adams, Morris, & Sessing 12850 Middlebrook Road Suite 308, Germantown, MD 20874 Phone (301) 637-0143 x 101 | Fax (888) 614-7163 Michelle@amslawgroup.com | www.amslawgroup.com Short Sales and Real Estate Licensees — Real Estate Commission
The cost of an attorney is less than the cost of not having one.
The materials in our newsletter are for informational purposes only and do not convey legal advice.
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