Buying Notes in Bankruptcy - Posted by Steve

Posted by John Behle on November 15, 1999 at 19:22:58:

Sometimes I post and mention something that I know needs more information or explanation. Sorry about that. Lenders are becoming more flexible on financing people after bankruptcy, but in this particular case, they would be withdrawing from the bankruptcy instead of going through it.

I’m not sure if a year would be enough after a bankruptcy or not. I leave that up to whatever mortgage company treats me and my clients well.

Yes, take him to lunch - with a creative B and C lender.

Buying Notes in Bankruptcy - Posted by Steve

Posted by Steve on November 15, 1999 at 09:02:49:

Does anyone have any experience buying notes in bankruptcy? if so, what are the caveats to watch out for?

Here’s the deal I’m working on. Any suggestions woud be appreciated.

I buying a 2nd T.D and the balance is $66,000.00, I’m getting it for $45,000.00, and the entire balance is due and is in default. The first is $88,000 and is in the arrears $10,000.00. The Trustor filed Chapter 13 Last week.
The property is easily worth $400,000

Motion for relief of Stay - Posted by John Behle

Posted by John Behle on November 15, 1999 at 18:39:55:

Interesting coincidence. I just had one like this come in a few minutes ago.

You would need an attorney to further pursue this deal. As Michael mentioned, you cannot do anything to foreclose this loan outside the bankruptcy. There are some things you can do.

Your attorney could file a motion for a “Relief of Stay” which would mean the court would release the property from the bankruptcy and let you foreclose, restructure, etc. Success in that depends on the type of bankruptcy (less chance under a 13) and the other assets and liabilities in the case. Under a chapter 13 where the house is the major asset (usually is), it is unlikely they would release it, but it’s worth a try. Courts are more likely to give a release of stay in a chapter 7 bankruptcy. The rationale is if you can convince them that there is no equity left in the property - above your loan - that could or would satisfy other creditors. If you have a low LTV, there is a much lower chance unless there are junior lienholders behind you taking up most of the equity in the property. The good news is your chance of a loss is minimal.

In a chapter 13 or chapter 11 bankruptcy, you should try to become one of the creditors on the creditor committee that has a say in approving or rejecting the plan. You don’t just have to sit back and wait.

Above all, consult a qualified attorney in any kind of a bankruptcy situation.

Re: Buying Notes in Bankruptcy - Posted by Michael Morrongiello American Note

Posted by Michael Morrongiello American Note on November 15, 1999 at 17:31:38:

Make sure you understand that an automatic stay exists at this time under the Chapter 13 bankrucptcy filing by the debtor. Secured and unsecured creditors cannot do anything to collect their unpaid debts untial such time that the debtor has formulated a creditor repayment plan and presented it to the court for their aproval. Once approved you will have to ride out the Chapter 13 bankruptcy which can last up to 3+ years as long as the debtor maintains their required payments to you that were approved under the creditor repayment plan. If the debtor “stumbles” then you can challenge the plan and attempt to remove the stay so that you can once again proceeed with a foreclosure, however as long as the debtor performs under the repayment plan, your hands will be tied.

With this in mind, I would carefully factor into the transaction in determining what I would pay for this non performing note, the costs to bring the 1st lien current ($10K or more), potential legal costs, and the potential for you to have to wait several years while the Chapter 13 is ongoing. The discount you may be getting may not produce that strong a return after all.

Michael Morrongiello
Operations Manager

Re: Motion for relief of Stay - Posted by jeff

Posted by jeff on September 26, 2000 at 07:32:51:

i wanny do a motion to stay court proceedings in a criminal trial

Not impossible and could be profitable. - Posted by John Behle

Posted by John Behle on November 15, 1999 at 18:44:32:

The one I mentioned that came in to me could work out. We will first do some due diligence on the property. I can pull an abstract for free through the internet and there are some good comps available. We are meeting with the “seller” of the property to verify what we have been given over the phone.

There is no equity in the property, but since it is in bankruptcy, both the second and the third are willing to take about a 90% discount. In other words, ten cents on the dollar for their loans. That creates equity.

With that kind of a discount, I am willing to make a proposal to reinstate the first and add back payments on to the loans and have them drop the bankruptcy. After about a year, they can even refinance.

I like it.

Re: Not impossible and could be profitable. - Posted by David Alexander

Posted by David Alexander on November 15, 1999 at 19:11:28:

I just had a guy in one of my houses file bankruptcy. Kinda screws up my plans for refinancing or selling off the note in a couple years. He’s about a year into the loan and I have a balloon on the underlying seller financing due in another year.

Are you saying I can still get a refi with a years good seasoning after the bankruptcy has been filed?

This guy always pays around the 4-10th, after the fifth he always adds the late fee. But the refi is my main concern.

Should I be taking this guy to lunch and having a heart to heart?

David Alexander