In this period of housing market turmoil, it’s rare to find a homeowner who wants her lender to foreclose on her house. But, according to the Associated Press, that’s exactly what happened to one Tennessee woman.

Here’s a look at her case and what it might mean for other bankruptcy filers.

According to news reports, the case of Sheryl Pigg looked like this:

  • In 2010, a flood damaged Pigg’s home and most of her possessions.
  • Pigg filed for Chapter 7 bankruptcy to discharge her debts and moved into a new home.
  • After the bankruptcy, Pigg’s mortgage lender changed the locks on her former home and posted “No Trespassing” signs around the property. However, the lender did not officially foreclose on the property.
  • Because of the absence of a foreclosure, Pigg was still considered responsible for paying homeowners association fees for the ruined property. The fees built up, leaving Pigg unable to take advantage of her post-bankruptcy fresh financial start.
  • Pigg sued her lender, requesting that it either foreclose on the property, accept a deed in lieu of foreclosure or sell the ruined property.
  • The bankruptcy judge who heard arguments ruled to reopen Pigg’s bankruptcy case so that the trustee could sell the damaged property and use the proceeds to repay the homeowners association and the lender.

In other words, Pigg asked the court to force her mortgage lender to foreclose on a property – and the bank more or less agreed that she was right to do so. Apparently, the judge interpreted the lender’s actions (such as changing the locks on the house) as evidence that it intended to foreclose.

Further, the judge reportedly reasoned that the law requiring Pigg to continue making homeowners association payments conflicted with the overall goal of personal bankruptcy. By requiring payments on a debt to which she no longer had any real connection (after having moved), she was unable to get on her feet financially after the bankruptcy discharge.

Requiring continued payments, in the judge’s opinion, undermined other bankruptcy protections.

Part of Pigg’s problem with the bankruptcy court sprung from changes to the Bankruptcy Code introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. Certain provisions of that law made Pigg remain responsible for the homeowners association fees even after her bankruptcy.

And while such fees may not sound like much to worry about, they’ve proven problematic for other homeowners in recent years. In extreme cases, some individuals even lost their homes because of overdue homeowners association debts.

As of now, sources note that Pigg’s lender might still appeal the court’s decision.

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