Posted by John Merchant on July 22, 2007 at 20:53:40:
While the BK Ch 7 (or 13) Trustee would have the clear right to sell, I suppose an Option holder would have first rights as per his option…and the T’ee would, as per BK law, have to honor that Option agreement.
Since BK Code modifications a year or so ago, the T’ees are looking much harder at the RE in the BK’s “estate” and are much more loathe to just let it go out the door for peanuts like they used to do.
Of course a sale would void liens of all sorts as they’d then be of no value…excepting IRS and other tax liens that would hang in there until the end so T’ee would have to deal with those tax entities and their rights.
So IRS and other tax entities would get the first dollars before and ahead of other creditors.
BK vs. L/O…WA Sup Ct says L/O wins - Posted by John Merchant
Posted by John Merchant on July 19, 2007 at 11:08:05:
In an important RE decision decision just published this a.m. by WA Supreme Court, that court held that an Option holder could force the reluctant seller to sell, via the Suit for Specific Performance he’d filed, despite Owner’s Ch. 7 BK discharge.
Crafts vs. Pitts is the citation to find and read for those interested.
And actually this decision may well be cited hereafter around the country as its holding is probably going to be law in a lot of states.
The underlying legal issue was if a BK Discharge then blocked and stopped the Option holder’s rights under his L/O or not…the Suit for Specific Performance filed by the Option holder being a suit “in equity” rather than a suit for monetary damages, which clearly WOULD have been thereafter estopped and blocked.
The REI should think through the implications for his own business…e.g. I’m thinking about the L/O holder who’s thinking his L/O is NG because the property owner has just flled a BK Ch 7 or 13 and the Option holder now believes his Option is null and void because of the discharge from the BK court.
That L/O holder might be very motivated now to assign and sell his L/O rights because he beleives them to now be worthless.
If you are interested in such a property and situation you’d want to check the Option to see if it could legally be assigned to you. It may either say something about assignability of such, or be silent on it.
If it’s silent, then your lawyer would have to research and see if the silence of the L/O agreement as to its assignability means, in your state, it IS or IS NOT therefore assignable.
That’s a State Court opinion, but bankruptcy is tried in a Federal court and its decisions trump state court decisions. The owner with the BK needs to go back to the Federal court to see if this is so. No State court can invalidate law in the jurisdiction of a Federal court or agency except through the Federal courts.
Posted by John Merchant on July 22, 2007 at 11:51:19:
Hi Rich
Next time all those lawyers and judges ask me for my expert opinion, I’ll pass along yours too.
While you are correct about Fed law “trumping” state law, that wasn’t the intent or purport of the WA Supreme Court in this decision.
The Court wasn’t really attempting, in any way, to change Fed law, just applying it to a WA State situation involving the Option owner’s rights to go ahead and enforce his Option under WA law and the existent Fed BK law.
I see this opinion as being analogous to BK law re discharge of LIENS.
As you and I both know, BK discharge, while it does discharge DEBT, does NOT discharge LIENS, such as Deeds of Trust, etc.
A BK can “stay” a D/T foreclosure for a short time but it never kills one.
Go find and read the decision as I think you’ll enjoy it.
It’s at least as scholarly as most of the 8th Circuit stuff we’ve been seeing now for a few years
By the way, I usually try to read your replies and postings here as you’ve got a good slant on things legal and otherwise, down there in sunny CA.
I’m actually in the SF area, which is often foggy.
Anyway, what would your take be if the property was sold under Chap 7. I would think that under those circumstances, the liens are gone. Never had cause to look into BK for myself or anyone else, so my knowledge is very general.
