Chapter 13- What Is Allowed
I am meeting with a homeowner in 2 days regarding her property which is in Ch. 13. Not sure what my options are. I am sure sub to is out of the question.
My initial review of the registry docs shows one lien of ~$200k. I know the owner is looking to get as much as possible, may list with a realtor but for some reason is interested to hear what I as an investor have to offer. [I am wondering if the home needs repair or if she does not have time to sell retail]. Anyways the house may be worth $500k [still trying to build accurate comps] it is in a very pricey town. It looks like the average prices are 700- 1mil. It is close to the smallest SF I have seen at 1680SF for this town [ all zoning is 2 acres and up] the majority of the homes are 2300SF and up so I could definitely expand to increase the worth.
I am thinking of proposing conventional financing to pay off the loan including all arrears, put $50 k in her pocket immediately on closing and ask her to owner carry the balance of my offer [to be determined] for 24 months with a balloon payment on or before that 2 year date at a 5% annual interest rate. If the note is $200 k for example, I would owe her ~$220k on maturity if held to the full term.
As long as she sells the property to satisfy the lien holder will the bankruptcy allow the promissory note??
Thanks for all replies.
Can anyone who has experience or knowledge of Chapter 13 conditions please advise? Just want to see what is possible...
Any contractual matter involving the property must be first approved by the bankruptcy trustee. The trustee will look at the entire bankruptcy picture (all creditors/all assets) to see if what you recommend is in the best interest of the bankruptcy estate.
Without bankruptcy trustee approval, the contracts may be voidable.
[addsig]
Many people who face bankruptcy get "desperate" fro cash. Your homeowner is able to keep her home throught this banko, including the equity thanks to some handy work of her atty in declaring the value of the home in the petition.
I'd ask to see a copy of her petition and see what the declared home value is there - this is the info that the trustee will be reviewing and you will need to justify.
Then don;t be surprised that if she has 100K of revolving debt and you buy the house so she has 50k of 'equity' that the court approves the sale, but uses the 50k to pay 1/2 of the revolving accounts.
I'd try to get a complete picture of her total finances, see how selling the house (to you) will fit into doing the right thing. You need to know the info on the petitions, accuract current and after rehab value of her home, and exactly what stage of the bankruptcy she is in; prior to this info, I wouldn't waste any time figuring out how to structure the sale.
Federal law allows one to exempt $17,425 in equity.
Let's use your 500k market value!
For example, if your customer's home is worth $500,000 and has a $200,000 lien, creditors would be able to claim $282,575.
It’s also likely the IRS will consider the difference between the value at which the home is sold and the mortgage balance as “income” on which your customer will have to pay taxes on.
Just some things to consider
Okay,
it looks like my action plan should be to offer what i feel will be a price that will allow for rehab, holding costs and a minimum built in profit [still determining this]. write up my offer with "x" amount as an owner carry note for part of the purchase price then let her submit my proposal to the bkry atty for approval.
I'm not sure that you've even met with the Homeowner.... Before getting all worked up on what you want, and what works for you...perhaps you should first meet with the Homeowner to learn what they want, and or need. At least the appearance that you've considered their situation will help...
Tough to make a proposal without first knowing the needs of the intended....
[addsig]
Sure, sorry for the urgency but she is meeting with two other investors. I want to make sure I am comfortable with my offer, hopefully competitive and have an offer (with some owner financing) that will ideally work in a Ch. 13 scenario. This last part I won't know until her lawyer reviews [if she accepts my offer]. She is obviously looking to get the best fit for her needs. Either my proposal will work for her or not. Just need to learn more about ch. 13 conditions.
Thanks for all the feedback.