One Bankruptcy Petitioner Avoided Foreclosure and Got a Free House – But Don’t Get Your Hopes Up that You Can You Get One Too

Our Office received a call recently from a property owner who had New Jersey Bankruptcy Court decision which awarded a free house to a Chapter 13 Bankruptcy petitioner.  He was convinced that the case he had read about was exactly like his situation.  He said the wanted to find a lawyer who knew about the case so that he could get his own “free house”.

The case the caller had read about was the decision of the United States Bankruptcy Court in the matter of  WASHINGTON v. SPECIALIZED LOAN SERVICING, LLC, et al, Chapter 13, Case No. 14-14573-TBA, Adv. Pro. No. 14-01319-TBA . The Bankruptcy Court’s decision is an extremely rare exception to the rule that ‘no one gets a free house’.  The Bankruptcy Court very reluctantly concluded that the home owner, Washington, who had not made a mortgage payment for over six years, did indeed get a “free house” because the mortgage holder was time-barred by the New Jersey Law which governs foreclosure, from enforcing either the note or the mortgage.  The Court noted:

“No one gets a free house.” This Court and others have uttered that admonition since the early days of the mortgage crisis, where homeowners have sought relief under a myriad of state and federal consumer protection statutes and the Bankruptcy Code. Yet, with a proper measure of disquiet and chagrin, the Court now must retreat from this position, as Gordon A. Washington (“the Debtor”) has presented a convincing argument for entitlement to such relief.”

The property owner who called our office was told that his circumstance appeared to be different than those presented in the Washington case; that even if his circumstances were identical, a different bankruptcy judge might decide the case differently; that Washington case was not legal precedent; and that the cost of litigation would be substantial and that there was no guarantee of success.

In substance, the caller stated that he would seek another attorney who knew more about “the law of free houses”.

Over the years, our office has received many calls from those who “just read about a recent court decision” which they are convinced will benefit them.  They are always wrong.  The laws that govern our country do change all the time.  The legislative branch of government passes new laws and amends old ones.  But the laws that are enacted are not like a light switch that is on or off.  They are more like a dimmer switch that can increase and decrease the illumination depending on the position of the switch – only it is a lot more complicated.  The position of the ‘switch’ is determined by the facts of the case, the applicable law, and, in many bankruptcy cases, the court’s view of property rights versus the goal of consumer bankruptcy law which is purports to support the remediation and rehabilitation of debtors.

The United States Bankruptcy Code was substantially amended in 2005, and made many changes to the rights of debtors and creditors.  Almost ten years after the law took effect, bankruptcy courts are still issuing opinions which apply the laws to the specific facts and circumstances of the case over which they are presiding.  It gets even more complicated when a property owner files a bankruptcy petition to prevent foreclosure.  The bankruptcy court must look to the state law that defines property rights and, in the case of the “free house”, the provisions of the New Jersey Statute of Limitations which govern foreclosure proceeding.

One thing is always certain.  When courts are called upon to make decisions that require examination of complicated facts and and unsettled issues of law, there are going to be conflicting court opinions – probably a lot of them.

The property owner who called seeking a “free house specialist” is one of many examples of wishful thinking by a homeowner facing foreclosure.  He mistook the law for a vending machine – you put the papers in and the court decision comes out.

Rather than focusing on the remedies that may be available to avoid foreclosure, those experiencing serious debt problems fall victim to “specialists” whose mouths of full of misinformation and promises to provide foreclosure remedies that do not exist.

In sum, just because a homeowner ‘got lucky’ and was awarded a free house because of the turmoil caused by the foreclosure crisis, doesn’t mean that seeking a ‘free house expert” is a sensible idea.  Many decades ago, our Office had a client who was in foreclosure because he had been laid off.  We had fully used and virtually exhausted every New Jersey State Law and Bankruptcy Law remedy to delay foreclosure, and were very concerned that if our client was not called back to work soon, he would lose his home.  Then, one day, he called to say he wanted to pay off his mortgage and get on with his life.  He explained that he had achieved this miraculous result by winning the lottery.  Despite the temptation, we have not engaged in magical thinking.  We do not believe that his winning the lottery had any connection with our representation.

What we do believe is that those who are experiencing serious debt problems need to retain an attorney,  as soon as possible, and rely on the advice  and counsel of an experienced attorney, and not on something they read on the internet.