Seller in bankruptcy, what pitfalls? - Posted by SueC

Posted by SueC on November 15, 2000 at 09:53:18:

Thanks for the detailed reponse. That waas extremely helpful, and I’m going to pursue the first lienholder today.

And, thanks for all of your helpful posts online!

Seller in bankruptcy, what pitfalls? - Posted by SueC

Posted by SueC on November 14, 2000 at 13:06:37:

I’m looking at buying a house from seller in bankruptcy. What I’ve read here previously makes me think I should just not get involved, but can anyone comment on specific issues?
I have been speaking to the 2nd lienholder, they’re willing to negotiate down their note and sell it to me, I’d want to speak to the first lienholder too, but don’t know how willing they’ll be.

I don’t know any of the details about her legal situation, but I can contact her lawyer to discuss. I assume the court would have to OK the sale, and I don’t know how to best present this to the court - esp if I’m able to get $10-15K out of it, seems like the judge might not be too happy about the estate losing that money.

Too risky for a newbie? Thanks in advance,


Re: Seller in bankruptcy, what pitfalls? - Posted by Sandy

Posted by Sandy on November 14, 2000 at 22:52:39:

I am currently working on a house where the seller filed bk about a year and a half ago. Back payments were included in the bk. I am working on talking to the atty. to find out if the trustee of the bk. will release the prop. from the bk once the back payments on the house are paid in full. I will not be putting any money into this deal until I have confirmed that this can be done. If they want the entire bk liquidated, then we’ll just have to see what the numbers say. My contract will be subject to release of the prop. by the bk court, bk bal. not to exceed (insert amount here). I do plan however on picking up the prop. subject to on the rest of the loan and selling with Owner Financing on a wrap. I will have the agreement to release the prop. from the trustee also before any monies are paid. I don’t know if I can get this to go down, but I plan on working that direction. I hope this has been of some help.

Re: Seller in bankruptcy, what pitfalls? - Posted by JohnBoy

Posted by JohnBoy on November 14, 2000 at 14:48:11:

You don’t have to deal with the court yourself on this. You deal with the seller and their attorney. Once you and the seller agree on terms, the seller’s attorney will motion the BK Court to get approval of the sale. My understanding is that it would have to be a complete cash out sale once the debtor is in a BK. Meaning, the court won’t allow the seller to carry any paper. Any proceeds that are to be paid to the seller has to be paid in full upon closing. The court will want that cash to pay to any creditors owed money.

If you can work a deal with the lenders, depending on the equity in the property after the first is taken care of, you need to be careful with the second mortgage since any equity in the property could get eaten up by the time the BK case is over because of the first lien holders attorney fees, court costs, back payments and interest tacked on to the balance of the first. The key is being able to buy the first from the lender. If you aquire the first, then you’re protected as a first lien holder against the property as a secured creditor. Then it becomes an issue of whether the owner wants to keep the property and reinstate the loan using the BK Court to keep the property or whether they would deed the property over in lieu of foreclosure.

You should be able to buy the property below market value in most cases where a realtor isn’t involved. The sellers attorney can argue that even though you would be buying below market value, that value wouldn’t be there anyway if they had to list the property with a realtor and pay a commission, plus any back payments that would keep accumlating until the property sold. So there is some breathing room to get the court to approve the sale. It’s just going to take the seller’s BK attorney to step up to the plate for his client to be able to sell off this asset so he/she doesn’t end up with a foreclosure on their record in addition to the BK filing.

Come to terms with the seller, find out if you could buy the first or at least get them to discount it some for paying it off, then you and the seller get with his BK attorney to have him get the thing approved to sell it through the BK court.

Re: Seller in bankruptcy, what pitfalls? - Posted by SueC

Posted by SueC on November 15, 2000 at 09:57:05:

That’s an interesting idea, I’m very curious how you make out, please do keep me posted. I thought of doing a “subject to” also, but it seemed like a bigger headache than just buying the notes and getting the deed in lieu of foreclosure as John Boy suggested.