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SB 220 — Bankruptcy Matters in Foreclosure Proceedings

by Senators Passidomo and Mayfield

This summary is provided for information only and does not represent the opinion of any Senator, Senate Officer, or Senate Office.

Prepared by: Banking and Insurance Committee (BI)

The bill allows a lienholder in a foreclosure proceeding to use documents filed in a defendant’s bankruptcy case as admissions against the defendant. A mortgage foreclosure is a legal action by a lender against a debtor to force the sale of real property that secures a defaulted-upon loan. The proceeds of the sale are used to repay the debt. Often, a debtor subject to foreclosure will file for bankruptcy as a means of obtaining an automatic stay of the foreclosure action and a discharge of the mortgage debt.

In bankruptcy, a debtor must file a statement under penalty of perjury stating his or her intent to retain, redeem, or surrender any property securing a debt. The debtor is supposed to act on that decision as a condition of obtaining a discharge of his or her debts. In some cases, debtors have stated an intention to surrender real property in bankruptcy proceedings, but later have actively contested the completion of a foreclosure proceeding regarding the property in state court.

The bill allows for documents filed under a penalty of perjury in a bankruptcy case to be filed in a mortgage foreclosure proceeding as admissions against the debtor/mortgagor. The bill also creates a rebuttable presumption that a defendant has waived any defense to a foreclosure action if the lienholder submits documents filed in the defendant’s bankruptcy case which:

  • Evidence intention to surrender to the lienholder the property that is the subject of the foreclosure;
  • Have not been withdrawn by the defendant; and
  • Show that a final order that discharges the defendant’s debts or confirms the defendant’s repayment plan that provides for surrender of the property.

A defendant can still raise a defense based upon the lienholder’s action or inaction subsequent to the filing of the document which evidenced the defendant’s intent to surrender the property.

The bill also requires a court in foreclosure proceeding, upon the request of a lienholder, to take judicial notice of any order entered in a bankruptcy case.

If approved by the Governor, these provisions take effect October 1, 2018.

Vote: Senate 35-0; House 111-0