In In Re Iuliano, 2010 WL 5452726 (Bankr. M.D. Fla. 2010), the bankruptcy court ruled that a trustee must abandon a homestead property if there is no equity beyond the amount owed to secured creditors. The court acknowledged, however, that a trustee may sell an underwater property in certain circumstances:
If the trustee can locate a buyer willing to pay more than the mortgage balance, the property will be sold. (Unlikely in modern times, but possible)
2. If the mortgage holder agrees to a """"short sale"""" with a carve-out for the bankruptcy estate's benefit. This scenario is highly unlikely, particularly if a second mortgage holder must also concur. But, it's feasible.
3. If the mortgage holder purchases the property from the bankruptcy trustee in order to avoid the time and expense of conducting its own foreclosure sale in accordance with state law, and agrees to pay the trustee additional funds above the sale price that will benefit the bankruptcy estate. In accordance with Section 363 of the Bankruptcy Code, fiduciaries are permitted to sell property lien-free. In essence, secured creditors' claims are transferred to the sale proceeds. The property cannot be sold under Section 363 unless all lienholders are paid in full or agree to accept a diminished amount. This is an unlikely scenario in most cases.
If a homestead property is not claimed as exempt, it remains bankruptcy estate property and the trustee may sell it if the sale can generate a significant quantity of cash for the estate's unsecured creditors.
Some Florida trustees have threatened to sell homestead properties for as little as $4,000 to third-party """"vulture investors"""" who would assume title subject to all existing mortgages and other liens. Typically, a vulture investor makes money by collecting rent and allowing the property to deteriorate by not paying the mortgage, association fees, taxes, insurance, etc., until it is foreclosed upon. Nothing in the Iuliano opinion or any other opinion even remotely suggests a trustee is capable of doing this.
Under the self-serving theory of some trustees, secured creditors cease receiving funds to which they are legally entitled under the Bankruptcy Code so that unsecured creditors can receive funds to which they are not legally entitled. This does not benefit the estate; the trustee is simply taking money from secured creditors (the legitimate recipients of the funds) and giving it to unsecured creditors in order to charge a commission. This makes absolutely no logic and is a breach of the trustee's duty. Therefore, the bankruptcy court in In Re Luban, Case No. 11-13633-AJC (Bankr. S.D. Fla. 2012) refused to permit it, and most Chapter 7 trustees in the Southern District of Florida do not threaten to sell a non-exempt, underwater domicile.
However, if the mortgage is already significantly delinquent, the court may permit the trustee to sell the property to a vulture investor, as the sale would not be the cause of the default and would not deprive the secured creditor(s) of any funds.
" - https://www.affordablecebu.com/
