Bankruptcy Question - Posted by IB (NJ)

Posted by lukeNC on October 05, 2008 at 04:31:19:

deed in lieu requires an extensive title search, making sure that there is only the one mortgage on title.

Also there’s the fraudulent transfer possibility. Another creditor may look at that transaction as fraudulent to their interests.

Many many things to look for in a deed in lieu situation.

you could have your sale later reversed by a trustee if the borrower later filed bk.

Deed in lieu is not nearly that simple…

Bankruptcy Question - Posted by IB (NJ)

Posted by IB (NJ) on October 03, 2008 at 23:16:06:

Let’s say I own a mortgage note in default and it’s attached to a property that’s been recently abandoned by the borrower (or it’s been abandoned for a year or 2) and I started foreclosure. If the borrower filed BK, how difficult would it be to be granted a relief from the stay imposed by the BK if the property is vacant and/or abandoned? How about if it was investment property?

Thanks in advance.

Foreclosure vs.Deed in Lieu - Posted by John Merchant

Posted by John Merchant on October 06, 2008 at 08:14:10:

As LukeNC correctly points out, a DIL isn’t always the answer as the grantee (guy who takes the deed)would then be stuck with ALL other liens on the property and he’d be in exactly the same position as the grantor (guy who signed the deed).

Foreclosure, on the other hand, does eliminate all subordinate (later than foreclosed-upon DOT) DOTs and voluntarily attached liens…not, of course, tax or government imposed liens as they’ll stay firmly attached like barnacles on a boat, until paid.

So even if S/owner offers you a DIL,have a look at the whole picture, title, other liens, etc., with your lawyer to see if that’d be good or bad, and if formal DOT foreclosure should be done so as to delete other liens, subordinate DOTS, etc.

Better to get Deed in Lieu? - Posted by John Merchant

Posted by John Merchant on October 04, 2008 at 10:54:33:

While it’s true that in CH 7 there’s an immediate, simultaneous “Stay of Foreclosure” that “Stay” is normally only protection for about a month, until the BK Court grants the “Motion to Lift Stay” that is then usually filed by the bank.

Two or three big problems that currently exist though:

First, if the BK Trustee feels there might be some equity in the RE, he/she’ll probably file “Motion to Convert to CH 13” which the BK Court will probably grant, as that Court wants to see as many creditors paid from assets of the bankrupt as possible.

In a CH 13, the Court will pretty carefully proceed to look at true market value of all assets so as to get all creditors as much help as possible.

Secondly, that BK Court might have the authority to do a “cramdown” or “lien strip” so as to reduce (or remove, in case of subordinate lien 2d or 3d note) the amount of money owed on the DOT secured note.

Third, with the plethora of Distressed Property Acts that have been enacted around the country (and in NC to be specific), you, as potential buyer of the RE from the Distressed Owner, have to walk very gingerly in your dealings with the DP Owner, so as to legally avoid violating NC laws.

John Locke, a well known and highly respected REI recently recounted his phone call from NC Atty Gen re dealings w DP Owners in NC and what and how the AG feels such dealings must be conducted so as to stay legalin NC.

I saw this on another RE forum, which the rules here forbid me to name here, but if you’ll email me I’ll pass it on to you.

Of course with the current recession/depression, there are so many houses in foreclosure that the one you’ve found might have no interested BK trustee or Court so you might be able to take title easily and w/o a fight.

In lots of otherwise foreclosable properties, though, it’s much simpler to go to debtor and pay him/her a few bucks and take a Deed in Lieu of Foreclosure so as to avoid your legal expenses and save lots of time.

Always try the DIL route first.

Re: Bankruptcy Question - Posted by lukeNC

Posted by lukeNC on October 04, 2008 at 05:15:27:

depends on the chapter they file and the equity position.

chapter 7 . no equity – very easy
chapter 7 , with equity – may take some time

chapter 13, no equity – may take some time
chapter 13 with equity – still may take some time

I’d say if its been abandoned, they have no plans to keep it and it has little or no equity, they’ll likely consent to foreclosure no matter what chapter they file.