BREAKING: Florida District Court Affirms Bankruptcy Court Order Compelling Surrender
On November 23, 2015, Southern District of Florida District Court Judge Kenneth A. Marra issued an opinion affirming an order granting a creditor's motion to compel surrender of real property pursuant to a statement of intention entered by Southern District of Florida Bankruptcy Judge Paul G. Hyman in the bankruptcy proceedings of David and Donna Failla. Failla v. Citibank, N.A. (In re Failla), Civ. No.: 15-80328-CIV-KAM, (S.D. Fla. Nov. 23, 2015), aff'd, 529 B.R. 786 (Bankr. S.D. Fla. 2014).
While there is some variance in how bankruptcy courts throughout Florida treat motions to compel surrender, Judge Marra's ruling becomes the first District Court decision to affirm a lower bankruptcy court's opinion, and, generally, supports the majority position held in the Eleventh Circuit. This means that when borrowers surrender a property in their bankruptcy and subsequently contest the foreclosure action, the creditor can move to compel surrender and prohibit the borrower from impeding and interfering with a creditor's efforts to retake possession of the property by available legal means.
The debtors resisting surrender argued that the effect of their statement of intention was to surrender the property back to the trustee rather than the secured lienholder and that with the trustee subsequently abandoning the property, the property reverted back to the debtor and stands as if no bankruptcy petition was filed. This, the debtors argued, would allow them to defend against a secured creditors' attempt to foreclose. Judge Marra rejected the debtors' argument as an “overstatement with no authoritative support” and, instead, found that once a debtor decides to “surrender” secured property, the debtor has abandoned “any interest or claim that he may have to the property as against the trustee…or against any secured creditor the debtor listed in the filed schedules as having a valid, undisputed, non-contingent and enforceable secured lien on the property.”
Judge Marra's opinion—the first from an Article III judge within the Eleventh Circuit to address these issues since Taylor in 1993—is of particular interest to secured creditors litigating foreclosure cases in Florida, which may now leverage this decision to improve their negotiating position for aged or aggressively contested cases or move to relinquish borrowers' defenses altogether.