L/O Seller Files For Bankruptcy
Right now I'm buying property subject to and L/O them to a T/B. I have been hesitant to actually control the property with a L/O from the seller because of my liability with T/B if the seller somehow defaults and files bankruptcy.
Of course I would make the seller's payments directly to a bank, but beyond that, I couldn't stop the seller from filing bankruptcy based on other debts. Other than doing a credit check on the seller to qualify him prior to controlling the property with a L/O, is there a way to protect myself from getting into a bind?
I just don't want to tell a T/B they're out of luck because the original seller has filed bankruptcy and some judge has the house tied up.
Thanks!
KAL
I THINK you can set up an escrow account with a title co (or other) who would receive rent check and pay mortgage and pass the difference to you.
Yes, I would use a title company or some other third party to make the payments.
My concern is what if the seller, who still holds title during the L/O period, goes bankrupt or defaults? Wouldn't his property be tied up in court or some other mess?
Am I missing something on the agreement between the seller and me?
Cheers.
KAL
Hi Everyone,
If you are having any thoughts
about deal make sure you do your due diligince If you still don't fell right(walk).
Quote:
On 2004-02-26 17:43, weski wrote:
Yes, I would use a title company or some other third party to make the payments.
My concern is what if the seller, who still holds title during the L/O period, goes bankrupt or defaults? Wouldn't his property be tied up in court or some other mess?
Am I missing something on the agreement between the seller and me?
Cheers.
KAL
Are you recording your option when it is created? If so you can defend you position as you will have a prior claim before the bankruptcy.
Bankruptcy can make things messy. It does not mean that all prior obligations and security that the seller committed to will be extinguished.
I am further assuming you are up front with the person you L/O the property to so that they know you are not the legal title holder. By disclosing all the fact they can not say later that you mislead them.
Alternatively you could do a land trust deal with the seller and then L/O the deal out to your buyer. Granted your buyer has more or less the same risk if you were to declare bankruptcy.
John
Well written L/O, recorded, escrowed payment/collections should protect you adequately. Legal advise seems appropriate. We're all too cheap to call the attorney but probably should earlier rather than too late.
[addsig]
Thanks John & John. I didn't know that the L/O with the seller should be recorded. I did plan on making the payments directly to the loan company/bank for the seller, including all escrowed items. Yes, indeed, I am upfront on all my deals with T/B...never have to remember anything but the truth!
I have an appointment next week with my attorney for our LP/LLC and will be discussing this with him as well. I hope to walk away with my personal check list of forms I should use and, now, record.
Thanks again.
KAL
ps...I have skied Taos and it's a wonderful place to ski!!!
You always want to record you interest if you have an option. It helps prevent the present owner from selling, refinancing, etc. Even if they are ethical they could die and the person handling the estate might not know you exist.
I believe some states require options to be recorded. Some contracts for real estate are not considered valid until they are recorded.
L/O contract with the tenant buyer should state that this contract does not convey any equitable interest, and that you do not own the property and you will fulfill your obligations, but if something out of your control were to happen and you could not deliever the house then the T/B would get back his option money as full liquidated damages.