Our Mortgage Was Previously Discharged in Bankruptcy But We Still Live There. – Jennifer

“Dear Steve,

We filed Chapter 7 in Colorado and it was discharged in October 2005. We had two houses – a rental that was foreclosed on at that time, and our primary residence – we were current on payments and have continued to make payments since and still live in the home. The house, though, is worth about $30K less than we paid for it (bought for $185K) and is in a depressed area where short sales aren’t an attractive option. We are possibly moving out of state due to a job change and would lose money trying to rent the house (probably about $400/mo), we can’t sell it and satisfy the mortgages (1st and 2nd), and we don’t see a short sale as a realistic possibility.

My question: if the mortgages were discharged in the bankruptcy, can we simply “walk away” even though it’s over five years later? Will this show as another foreclosure. How is it done? Can we do a “deed in lieu?” We know that we are likely to become renters for quite a long time, but to be honest, with the housing market, that sounds like a relief after being in this situation with this house.


Dear Jennifer,

A very interesting situation. Do you have any idea if the home is still titled in your name? If so, handing the property back to the bank may still leave you on the hook for property taxes for the house.

The mortgage and the title are two different instruments.

While this is an unusual and uncommon situation, there can be a solution for you, but it is going to be a technical one for sure.

If I were in your shoes I would consult with a local real estate attorney on the matter. The real estate attorney can make sure that the goal to get you completely out from under this house, without any lingering liability, may be able to be achieved.

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