“If I were to sign this up and sell my contract, what liability would I have in the future if he does file another BK…?”
Depends partially on what the assignment agreement says / implies. Assignment of a contract does not carry the same warranty as conveyance of a deed, so the rule of “Caveat Emptor” is in play here, to a large degree. Depending upon the purchasers proficiency level, they may or may not have any recourse requirements built into the agreement.
Can anyone help me understand banckruptcy? - Posted by Bryan (NC)
Posted by Bryan (NC) on August 14, 2004 at 13:02:05:
What is Ch13? What is Ch7? how do each affect a RE deal?
I’ve got a seller in Ch13 with probably 50k of equity. He is self employed and can’t keep making the scheduled bankruptcy payments. He’s willing to walk away but his 2 payments are way to high for a sub2 deal to work. Is there anything affecting his ability to sell the house for the payoff amounts (loosing all that equity in the process)?
You mention 50k in equity–what’s the home worth? If there’s good upside then you should pursue this deal. You know that he cannot sustain the bk. payment plan–this is an important consideration. The bk. can be voluntarily dismissed by the debtor. I would not suggest this to the debtor/owner rather work out a deal then ask to speak with his bk. attorney. Tell the attorney that you want to buy the home and ask how you can do that (be sure the owner informs his attorney that he cannot continue with the payment plan—so the attorney knows what’s going on). When talking to the attorney let the attorney suggest dismissing the bk.–if he doesn’t suggest it as an option then suggest it to him in the form of question (can he dismiss?).
If things move forward great–if not, be sure not to spend too much time on something that may not work.
If the debtor defaults on his payment plan, the Ch 13, (reorganization plan) will be dismissed for lack of participation. Once that occurs, then structure a Purch & Sale Agreement on or after the dismissal. Providing there are NO other issues that would effect his conveyance of clear title to you, then he can go ahead and convey this outside of the Bk case.
If you must persist with the sale while the Ch 13 Bk is active, then any contract and conveyance must be sanctioned, (agreed to) by the Bk Trustee. The Trustee will not likely agree to any deal that simply pays off the current mtgs, but nothing else for the unsecured creditors. They will have to receive a bone, as well as some $$$ for the Trustee, or else no deal.
So I think the most direct approach approach is to allow the Bk to be dismissed and closed, and then pursue the sale at that point. Just make sure that the seller is not going to turn around and re-file another Bk within a short order, or else the Trustee can envoke the look-back provision. You will want between 6 months and a year between any closing that you have with this seller, and the date that they may file another Bk, to avoid a conflict later on with the Trustee…
There is lots more to know here, but only so much band width to explain this…
Your sale will probably have to be approved by the Bankruptcy Court. If this gives him enough money to pay off all his debts this shouldn’t be a problem. However if it doesn’t you will probably need to show that this is a sale at or near market value. Good Luck!
Posted by Bryan (NC) on August 14, 2004 at 17:19:31:
Hmm, great suggestion, Nike! The seller’s calling me back again on Monday - he’s already asking his BK attorney about the sale. I never would have thought of trying to get the attorney to suggest having the BK dismissed.
I’m having trouble finding online comps for this property (it’s outside where I usually market) but I do have a reasonable expectation that it’s worth about 290-300k. I just gotta find out if my guess can be confirmed.
Posted by Bryan (NC) on August 14, 2004 at 15:41:42:
What can I do while waiting for the BK to be dismissed to make sure the seller doesn’t go and sign up a deal with someone else? Do I want to sign a contract with him now with a provision that it be renegotiated after the dismissal? Or do I just try to convince the guy that I have the best game in town and anyone else is wasting his time (not something I’d pull off very easily).
Re: help me understand banckruptcy? - Posted by Bryan (NC)
Posted by Bryan (NC) on August 14, 2004 at 15:32:23:
Thanks for the informative response, JT!
As to making sure no future BK is filed in the near term, I’m sure that’s something that can’t be enforced by a contract. I’m guessing that means I need to take a look at this guy’s entire financial picture and make a decision about his reliability.
If I were to sign this up and sell my contract, what liability would I have in the future if he does file another BK?