Seller Deeded The Property, Then Put Into Bankruptcy
my heart rate is high...please help!!!!!
my seller was behind 2 1/2 payments and deeded me his property. We gave him the $1,200.00 he wanted and paid back payments of $2,200.00. of course, the house needed renovating and this was done as well. we are about $5000.00 into this and seller calls that his bankruptcy attorney is hollering fraud and claims that he is going to force this property into the bankruptcy. we have recorded the deed and unfortunately named the trust as "their last name Family Trust". are we protected at all as innocent 3rd party? is it illegal for a family to file bankruptcy and not put this property in (it is considered a debt-mortgqage)???
someone please HELP quick!
They have to put the mortgage/debt into the bankruptsy. You have just gotten a $5,000.00 education. You will probably lose the house back to the owner in the bankruptsy. You can file a dispute with the bankruptsy trustee/referee and explain your side.
so in any situation, when you take the title by way of trust..."subject-to", the seller can file bankruptcy and you lose???? c'mon- there has to be some way around this monster?
HELP!
if it is a lesson i have to learn- "ce la vie" or however you spell that, how do i avoid this in the future? someone must have a creative way to get better control after spending all this money?????
How much equity is there in the house?
I believe there is a time period, 60 days??, in which the seller can not sell before entering foreclosure. This is to protect his debtors and prevent him from "cashing out" his equity. I think the court can get the house back.
But, as to your position and money spent I'm not sure.
Please keep us updated as to the outcome.
Best of Luck!
John
Hi kim, this may be best answered by John Locke in the 'subject to' forum, but if you recorded the deed then the property is YOURS. If the property is yours then HOW can it be a part of their bankrupcy? Get a legal opinion, from a GOOD attorney. sounds like you are being 'taken'. Fight back
Good luck
Joe
I have to agree with KMAN, if you got the deed, the property is yours. Show the bankruptcy atty that they deeded the house to the trust and that YOU, not the sellers, own the property.
Be kind and patient. The sellers have probably not been honest with all sides. There may be some deception on their part or maybe some ignorance. Maybe it is the atty who does not understand that YOU own the property.
I ALWAYS want to have a conversation with everyone involved. That way you can explain the whole story to everyone. Talk to the BK atty before you go and get one yourself. Talk to him/her with respect but firmness that you know what you did was perfectly legal, moral and completely above board. There was no deception on your part whatsoever. Maybe the atty was the one who was scammed?? Who knows.
If I have $5k or even 5 minutes invested in a deal, I want to get to the bottom of the problem. No one is going to pull the rug from under my feet.
thanks so much for all your input and "pumping-me-up"! we want to contact an attorney, but we are worried about sinking any more dead money into, unless someone comes with great info. i did talk to her bk attorney and he gave me little info because he works for her. he is going to review the documents tomorrow and submit the property as transferred, but he thinks that the trustee won't allow it to fly since we named it as a family trust. we hope, at least to be viewed as a "bonified purchaser of value" and at least get back what we paid him $1200. the trustee can undo the transfer, from what i was told. ....the worst of it is that i am not cheap, but am not wasteful. i won't leave a penny on the ground if i spot it- so this just makes me sick!
It really has nothing to do with the lawyer. It has everything to do with the trustee. Now they can list it two ways in the BK. One is an asset the other is a liability. If they list it as a liability then no problem. Even if they list it as an asset with equity no creditors will usually step forward. Now my question is chap 7 or 13. 13 could present some really big problems for you. If its 7 I wouldnt worry. But the trustee is your biggest worry he could disolve your entire deal
they are filing chapter 7 and the attorney is going to list the property as transferred, with the mortgage or "debt" remaining in their name. unfortunately, it looks as if we are "out of luck" , but again, how do i avoid this in the future? each time an investor takes title this way, they could be at risk for this outcome??? can i get back my investment? wouldn't the court view this as helping to relieve/reduce the actually debt that was going to be taken on? it [ Edited by investorkim on Date 03/10/2004 ]
The property may be taken away from you if the sale is deemed as a "fraudulent transfer". This may happen as a result of two sets of circumstances:
1. The Durrett Rule says that any sale for less than 70% FMV is fraudulent, so you need to document the poor shape in which the property was sold to you. The court may look more easily at a sale above 70% FMV, but there is no save heaven. This is rare, but happens.
and
2. The borrower "was insolvent or became insolvent as a result of such transfer." Bancruptcy Code, Section 548(a)(2)(A) and 548(a)(2)(B). If the net value of the seller was negative or became negative as a result of the sale then the trustee may take the property away from you and invalidate the sale.
There are also state statues dealing with fraudulent conveyance, but they don't apply in the federal Bankruptcy Court.
You can argue in court that both circumstances did not occur. Otherwise you can recover some of your investment from the proceeds of the bankruptcy, which is unlikely. You can't get any interest back on your investment.
This is one of the risks of investing in preforeclosures. "There ain't no free lunch"
SJ
I think I read somewhere that it's good to have a seller in this situation sign a disclosure or affidavit or something to the effect that they are not in bankruptcy and are not considering filing bankruptcy in the near future.
Anyone else consider this a useful approach?
I see this as possibly helping in two ways. First, you may find out (unless the people simply straight up lie to you) that they are indeed considering bankruptcy and then, at least you'll know what you're getting into and know not to commit too much money.
Another possible benefit by having this document signed by the seller saying that they're not considering bk might be that the bk court could look favorably upon you in that you took all the precautions that you could and had no knowledge of a fraudulent conveyance.
I don't believe that affadavit would be of much value. You really can't ask someone to give up their right to declare BK.
No, you missed my whole point.
You're in no way precluding them from declaring bk. Please refer to the two items that I did cite as potential benefits
Has anyone had any experience or further knowledge of whether these two ideas might be beneficial?
Apparently you have accepted a Deed from the borrower and not assumed the existing debt nor extinguished it by refinancing...moral of the story is to button up the lender-borrower portion or pass on such deals. With rates as low as the are today, refi is likely the cleanest route.
well, we are crossing our fingers and wishing upon a star..we have a contract for purchase and are just waiting for pre-approval letter to sign. hopefully, all goes well and we pass on the great deal to the next guy, get our small investment back + a little gas money, and help the seller move on!
one thing we did learn thru this, if you are taking a property by way of trust...never name the trust as the sller named family trust! we used this technique for title issues, but have found out that the seller could sue you for half the profit as their name being used shows entitlement!!!! we will now use street name/ number of trust. will keep everyone posted...
Actually some landlords like to name trusts like some large bank ("First MA Realty Trust"
. Apparently some tenants think that the owner is a big institution and are less likely to look for the investor.
SJ