What If Owner Goes Bankrupt?
Hi everyone! What if I entered into a L/O deal with an owner who, after I had already placed tenants in the house, went bankrupt or allowed the house to enter foreclosure? This is just hypothetical. What if the owner spent the money I sent him rather than pay the bank, etc. (however unlikely it may seem...)? Would the bank take the house and the tenants have to be kicked out? Would the bankruptcy show up on my credit even though I'm not the owner or the renter? Sorry for all the questions.
Chad Orbe
Hello
I am sure more experienced guys out there can explain it better. However, I've heard some investor who was sued over the case. The tenant/buyer lost their house (because the house owner filed bankrupcy)....and sued the investor. I am sure you can write a contract that would prevent it though.
Joxtal
This is a good topic, thanks for posting. I know some people use a title company or a third party trustee so to speak that they send their rent payments to, and that trustee then pays the bank their payments. That way, the monthly payments get paid to the bank every month- whether the owner files BK or not. Seems like a good idea to me, but, not sure what that 3rd party costs each month. Anyone else got ideas?
D
Nothing would show up on your credit.
I am going through this now, I had a L/O that I already had a tenant/buyer in. What happened is both the husband and wife (owners) filed for chapter 7. When the lenders were notified they found out it was an investment property and immediatly started the foreclosure process. They do not want to deal with me at all in fact, even though all the payments have been made by ACH, from me. I haven't got to the bottom of it yet but I informed the tenant and I will meet with my legal team later this week to discuss what I should do in addtion to my contractual protection.
Hi everyone! I am new to the forum but would like to offer my 2 cents that might help you avoid problems with your L/O
1. Record a Memorandum of Option. It's inexpensive and offers you protection for your rights in the property.
2. Set up a direct payment account with an escrow company, title company or firm to pay the bank
3. Open escrow ASAP to create a paper trail.
4. Have a clause in your contract (default clauses). In the event the owner fails to pay to the bank and keep the money, you can makes these payments and recoup any funds that you have expended on a two for one basis.
5. Have owner sign a letter to release information about the property. With this letter you are notified by the bank, insurance company, home owners associations ,etc, if a payment is late. Also lets you know what is going before it's to late.
Bottom line, things can go wrong but you must be prepared before they (if they do) happen!
Diana
Thanks for the advice everyone. I'll look into all those ideas.
Chad
Quote:
On 2004-05-04 08:26, fontanezdiana wrote:
Hi everyone! I am new to the forum but would like to offer my 2 cents that might help you avoid problems with your L/O
1. Record a Memorandum of Option. It's inexpensive and offers you protection for your rights in the property.
2. Set up a direct payment account with an escrow company, title company or firm to pay the bank
3. Open escrow ASAP to create a paper trail.
4. Have a clause in your contract (default clauses). In the event the owner fails to pay to the bank and keep the money, you can makes these payments and recoup any funds that you have expended on a two for one basis.
5. Have owner sign a letter to release information about the property. With this letter you are notified by the bank, insurance company, home owners associations ,etc, if a payment is late. Also lets you know what is going before it's to late.
Bottom line, things can go wrong but you must be prepared before they (if they do) happen!
Diana
Diana seems to have covered the key points. Maybe for future reference you should in a round about way ask the sellers if they plan to file BK