HELP! Can Get Deed, Buy Seller May Declare Bankruptcy
Hi, any help is greatly appreciated!
There's about 20% equity in the deal. He's willing to deed me the house subject to as long as I just take over his payments.
However, he says he may soon declare bankruptcy, even though I buy his house subject to.
Is this a HUGE red flag? What happens if he does deed me his house and files for bankruptcy?
Thanks!
Martin
That is a good question! Personally I'd say talk to an attorney because this is a big complication..
In my experience I have purchased sub-2's after the person went bankrupt, in one case BankOne was the lender and they have a special dept. (bk dept) that handles the loan and one of the officers emphasized to me that the "owner" was under no obligation to pay the mortgage.. (keep in mind, that may be the case, but no pay = foreclosure, so that statement made alot of sense) though I think it meant that the lender can not come after the borrower civiliy for expenses/damages (i.e. lawsuit) they may ONLY go after the property and the owner is off the hook civily after filing bkruptcy.
Depending on complications, INCLUDING the owner will have to declare the home and mortgage on the bkruptcy filings and the court will handle that debt/assett, this could seriously compromise your interest, and should you FILE your deed prior to the bkruptcy, it might get ugly between the lender and you in a DOS issue..
I'd tell the owner to file BK before you buy it sub-2, or not touch it myself otherwise
explore a shortsale with the lender..
Chris
martin1g,
Glad to meet you.
First check the Homestead Laws in your state if your seller has not filed one have him file one on the property. A certain dollar amount in equity in the property is protected from the bankruptcy.
Second talk with the sellers attorney explain what you are doing to help the seller. Once you make a payment on the property after the bankruptcy then the property is excluded from the bankruptcy.
People file bankruptcy all the time and keep their car or house just by continuing to make payments, the lender would only figure that this seller is not going to let the house go and continue to make payments.
However, clear this with the sellers BK attorney so their are no suprises down the road and everyone is in agreement.
John $Cash$ Locke
I'd just add that in my experience, very FEW deeds by prospective BK are set aside by the BKCourt or trustee, so if you can get deed now, it'll probably survive the filing & discharge of the BK.
Saw, recently, some literature of a national association of bill collectors, that advised its members to get & hold onto any payments of any BK's bills or debts that the creditor might receive.
The material quoted some interesting stats to the effect that almost NONE of those payments have ever been set aside by the BK Court or Trustee.
It said that even if the creditor were to get a demand letter from the Trustee to bring that money into court DON'T do it!
And to contest it and argue that it's fair for the creditor to keep it! And that, in all likelihood, that creditor will NOT have to return the money or share with the other creditors.
Don't let this be outside your reality. I'm sure it is possible but I don't know how to do it. Surround yourslelf with a winning team that you can rely on to guide you through your life financially.
This is a good question for your own attorney. I interviewed a few dozen before I found one that invested in RE and understands creative financing.
GOOD LUCK