Citibank Wins Foreclosure Appeal in Bankruptcy Test

By Chris Bruce

Oct. 4 — Debtors who surrender property under the Bankruptcy Code can’t oppose foreclosure efforts by Citibank, a federal appeals court said Oct. 4 ( Failla v. Citibank N.A., 11th Cir., No. 15-cv-15626, 10/4/16 ).

The ruling by the U.S. Court of Appeals for the Eleventh Circuit eases foreclosures in that circuit in two ways. First, it means that a debtor who discharges mortgage debt by surrendering property under 11 U.S.C. 521(a)(2) can’t oppose creditors who then try to foreclose in state court.

The decision also speeds that process. Judge William Pryor, who wrote for a three-judge panel, said bankruptcy courts can order debtors who surrender property under Section 521(a)(2) to drop their opposition to foreclosure. The debtors said the bankruptcy court didn't have that authority.

The case involved husband and wife David and Donna Failla, who defaulted on their mortgage in 2009 and filed for bankruptcy in 2011. They agreed to surrender their house to discharge the mortgage debt, but fought Citibank's foreclosure proceeding in state court.

The bankruptcy court, on Citibank's motion, ordered the Faillas to surrender the property, and a district court affirmed.

Bankruptcy Court's Power

Among other points, the Faillas said they need only surrender to the bankruptcy trustee. But the Eleventh Circuit disagreed and upheld both lower courts, saying they have to surrender the property and drop their efforts to stop foreclosure.

“Section 521(a)(2) requires a debtor to either redeem, reaffirm, or surrender collateral to the creditor,” Pryor said. “Having chosen to surrender, the debtor must drop his opposition to the creditor’s subsequent foreclosure action.”

The appeals court also said bankruptcy courts may compel debtors not to fight foreclosure.

“The bankruptcy court had the authority to compel the Faillas to fulfill their mandatory duty under section 521(a)(2) not to oppose the foreclosure action in state court,” Pryor said.

The Faillas were represented by Peter David of the Ticktin Law Group in Deerfield Beach, Fla., and Michael E. Zapin of the Law Offices of Michael E. Zapin in Boca Raton, Fla.

Citibank was represented by John R. Chiles of Burr & Forman in Fort Lauderdale, Fla., and Jonathan M. Sykes in the firm's Orlando, Fla., office.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Mike Ferullo at

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