Bankrupcy After Sub2 Transaction
Hello All,
I understand by doing sub2 the owner/seller's name is still on the mortgage..but he gives up his deed.
So...what happens if the owner/seller file bankrupcy after the sub2 transactions.
Thanks,
Joxtal
Since you acquired the property Sub2, the property is still encumbered by the existing financing. When someone files bankruptcy, they can sometimes exclude certain debts from the bankruptcy. They could exclude the mortgage from the bankruptcy, at which time the lender will either agree to leave the existing financing in place, or call the loan due. If the lender was not aware that the title was transferred to you, they soon will be. Keep the payments current, and it's still you and the lender coming to terms on the loan.
Be prepared to get new financing. I'm not sure which way this would go.
The borrower can include the loan in a CH 7 BK. If they do this, then the BK court can liquidate the property to pay off creditors with the equity. Remember you took the property sub 2 which means you would have to pay the loan off in full or the lender could foreclose on the property.
This is a really tricky situation becuase you hold title, yet you dont really control the property anymore if the borrower does the BK, the court controls the property. Just make sure to fill the borrower in on these details. Alot of times the borrower consults an attoreny who in almost all cases will tell the borrower to include the property in the BK