BK After A Short Sale
We are preparing to complete a short sale next week. Homeowner is planning to file BK shortly. Is there anything we should do to protect ourself from losing the house as a result of the new BK? :-?
why would you need to.
Sign, fund, close.
done.
How would the BK affect you, if it is REALLY a short sale??? :-?
Well, figure your foreclosure of the first to take more time.
Cindy,
Just have the owners wait till the short sale is completed because the BK will keep the owners and the bank from transfering ownership. And , if the bank insists on a deficiency judgement, the BK will wipe that out and help the owners out.
Kelly(WI)
Yeah, right.
Have you guys never heard of the court reversing a sale?
If the court determines that the sale was not in the best interest of the creditors, the judge will be more than happy to take that house back from you, including any repairs that you have made.
My recommendation? Talk them out of the BK, or pass on the deal. You don't want to wonder if the house will be taken from you!
Aha... Found a quote at a Bankruptcy FAQ:
Quote:Should I dispose of my possessions before I file?
If you give, sell, or transfer an asset to some within one year before filing for bankruptcy, the trustee in bankruptcy can reverse that transfer and deem it fraudulent if it was made for less than the fair market value of the asset. For example, if you give away a piece of non-exempt property to a family member within one year before filing bankruptcy, the Chapter 7 trustee may be able to reverse that transaction to bring the property back into your bankruptcy estate.
Sure, that is if the home has any equity at all. Short sales, the very reason a bank does it, is because the property is worth less than owed.
Kelly(WI)
Yes, walk away from the deal. Then wait until after the BK and then re-engage with the BK trustee. That's the only sure way to stay out of a legal tangle you don't want (trust me) and keep your money from being held captive by a BK proceeding.
Bankruptcy is a very complex topic that defies easy explanation and generalization. I would not want to approach a significant transaction where a BK is involved without a very good lawyer on my team.
You should know that a BK trustee has very broad powers and almost always will unwind any extraordinary transactions (i.e., major asset sales but not things like paying a monthly bill) that occured up to 90 days before the BK . They can and do reach further back when the situation warrants.
The one case where I believe you are OK to proceed is if the sellers have been attempting, unsuccessfully, to sell the house with a listing RE agent for at least 90 days, AND the bank agreed to take less than they were owed AND the short sale package is credible and well documented, AND there is no evidence of collusion or conflict of interest.
If this is the case, then plan on attending the first creditor's meeting and be prepared to defend the sale and have all your documentation at the ready. If you do you should come out OK and the sale will probably stick.
If you can't honestly say to yourself, not me or anyone else, that you have all these things then I would walk away. You just never know what skeletons are going to come out of the closet at the FCM, or which direction the BK will go until it is held.
In summary I'd say stear clear of BK until you really understand the process or have someone on your team that does. Hope this helps...
once the house is sold and its out of the owners name, it would not be listed as an asset.
Do the smart thing and consult a bankruptcy attorney. We do this kind of thing all the time and even pay for the homeowner's bankruptcy attorneys fees and filing fee. Why? Because we are negotiating a short sale with the lender and by definition, a short sale means that the lender is taking less than the amount it is owed. We negotiate a deal with all the lienholders. Most of these homeowners owe more than the FMV if they could sell their house. Most people can't afford to maintain their homes if they can't afford to make their house payments.
Quote:
On 2004-04-10 10:14, lp1 wrote:
once the house is sold and its out of the owners name, it would not be listed as an asset.
Again, the bankruptcy trustee has the power to reach back in time up to 90 days before the bankruptcy filing and unwind any extraordinary financial transactions; which the sale of a house usually is. Thus, even though the property is not in the name of the person filing bankruptcy at the time of the bankruptcy filing, the trustee has the power to unwind the sale and pull the house back into the estate of the person declaring bankruptcy, i.e. the seller.
Now, here's the kicker. Theoretically, to completely unwind the sale, the trustee brings the property back into the estate of the person declaring bankruptcy and returns the consideration, i.e. the money, paid by the buyer to the buyer. BUT, typically some, or all, of the money collected by the bankrupt seller is long gone by the time of the bankruptcy filing.
So, the buyer may have to wait some time before getting their money back, without the enjoyment of title to the property, while the trustee unwinds and resolves other transactions in the bankrupt seller's estate to get the cash to return to the buyer.
If you're lucky, you will get your money back in about 30 days. Most are not. If you're unlucky the trustee or judge may order a new sale of the property to raise the money to pay you back. Unfortunately, courts have a different sense of the passage of time than investors. It could be as much as six (6) months before you see your money again, and there's pretty much nothing you can do about it.
I don't know about you, but as an investor, that's a completely unacceptable scenario to me. That's why I advise to not even think about approaching a bankruptcy scenario unless you have a very good bankruptcy attorney on your team that can steer you clear of the pitfalls.