Owner files Bankruptcy - Posted by Brett

Posted by Brett on January 31, 2006 at 07:54:20:

Thanks everyone for your reply’s. One more thing though. What is the safest way to hold property’s you bought subject to? Is it putting the property in a land trust?

Owner files Bankruptcy - Posted by Brett

Posted by Brett on January 30, 2006 at 08:57:39:

This is a what if question. Lets say you buy a propetty subject to the existing financing or are leasing the property to sub lease for profit and the owner of the property files bankruptcy. What happens to your tenant who you sold the property to on a rent to own basis? Is there any way to protect yourself in a situation like this? THis is one reason why I am hesitant to do subject to deals altough I have one under my belt.

What about a L/O after bankruptcy? - Posted by Dave K

Posted by Dave K on January 30, 2006 at 12:54:29:

Would this make the deal harder? What comes into play? Would I have to deal with the trustee? Any one have experience with this?

only thing that matters is… - Posted by lukeNC

Posted by lukeNC on January 30, 2006 at 12:37:50:

the equity position.

If there was significant equity available when they sold it to you on a sub2, then the bk trustee CAN undo the sale if the sale happened less than a year prior to their bk filing.

This happened to friend of mine. He got a home worth $120k subject to a loan of $77k, gave the owners $5k and they left town. They filed bk 7 months later and the trustee sued my friend to avoid the conveyance. He lost, the bk court sold the house to payoff all of the previous owners unsecured creditors. He got about $700 once all was said and done.

So what? - Posted by Jim FL

Posted by Jim FL on January 30, 2006 at 11:19:00:

I would say, if you are in a sandwich lease option situation, there might be some problems, no matter how well you secured your position.
However, with a subject to purchase, you would own the property, so why would you care if the sellers file BK AFTER they sold to you.
Ultimately, should the sellers include the loan on the house you own, in the BK, and get it discharged, my past experience with this indicates that you then own a house, with a loan on it which has no personal recourse.
The loan is still secured with collateral, the house.
As long as the lender continues to accept payments, and the account is in good standing, this would be a good position to be in, in my humble opinion.

There will probably be some folks who come on there and scare you, with things like, “watch out, the bk can do a look back and undue the sale” etc.
As long as you, a third party, previously unknown to the seller’s, purchased the house from the seller’s, that sale is done, complete, and will stick.

I own quite a few houses where this has happened, the sellers filed BK after selling to me.
I love those houses, and with the low owner occupied rates on them, keep them as rentals.

If you’ve bought a house, and the seller later files BK, it should have no effect on your ownership at all, if things are done above board and correctly, no matter what method was used to BUY the property.

Hence the difference between sub2 and lease option.

Jim FL

Re: only thing that matters is… - Posted by jtp

Posted by jtp on January 30, 2006 at 13:22:01:

Which one of you guys are right? Are we talking about real estate in the same State?
I’m not sure I follow the chain of ownership on this deal, but I don’t think the question was answered. What is a “sandwich” deal.

Re: So what? - Posted by colvegas

Posted by colvegas on January 30, 2006 at 23:35:46:

Yes I agree in a sub2 transaction the investor took clean title to the property legally by grant or warrnty claim deed so there should be clear title. The loan is still in the seller name and the bankrupcty affects the sellers personal finances and as long as the note is being paid on time by the optionee I do not see any real problems.
If you were smart I would vest the title into a trust so the property title is protected but the only thing is the bankruptcy trustee really could not see this as a fraudulent convenyance due to the title is not in the sellers name so they can not go after the equity in the home so I would think you’d be ok,especially since you took title well before this seller files his bankruptcy.
I would get with a good bk attorney and run it by him so there are no surprises…

Re: So what? - Posted by DaveD (WI)

Posted by DaveD (WI) on January 30, 2006 at 14:27:34:

I’ve had similar experiances as well. One was with a local lender. I wandered into his office, told him I was going to bring him current, unless he wanted the house instead. He said he’d take the payments. Later, when the seller went BK, I called and asked him the same thing. He said he was still very happy taking payments. I said I was happy too, leaving the newly non-recourse loan in place. Thank you. We help each other out, ya know?