Sub2 Questions - Posted by HJ

Posted by Jerome on December 09, 2004 at 17:53:52:

I have no intention of misleading the inexperience and if one has been misleaded I truly apologize.

Sub2 Questions - Posted by HJ

Posted by HJ on December 07, 2004 at 20:56:20:

I have a situation here that I don’t know how to handle and was wondering could anyone give me some advise. I have come across a seller who has a house that he is willing to sell sub2. The question is, is it doable. Here is the scenerio. Tell me what you think.

Property: 3bd, 2 1/2 bth, 1/2 acre lot, unfinished basement
Nice neighborhood
Appraised for 155K two years ago
House probably needs 5 - 10K work
Amount owed on existing mortgage: 138,500
Seller has run into financial difficulty, fell behind on payments and has filed a Chapter 13
Amount behind as of 10/1 : 10,500
Seller doesn’t plan to pay anymore on the house and let it go into foreclosure. Just wants 5K.


  1. Can house be purchased sub2 since it is in bankrupcy?
  2. Does owner need to get permission from court to sell?
  3. Can amount needed to bring current and repair costs be borrowed?

Re: Sub2 Questions - Posted by B.L.Renfrow

Posted by B.L.Renfrow on December 08, 2004 at 01:04:25:

The response below is incorrect. The seller absolutely CANNOT sell while under bankruptcy protection without permission from the court/trustee. To do otherwise would constitute a federal offense on the part of the seller, and as a result, the bankruptcy court could rescind the sale.

It could be purchased subject-to IF the trustee agreed, but at least in my area, BK trustees will not approve a subject-to sale.

In any event, it doesn’t look like a deal unless you were able to convince the lender to accept a short sale once the property is released from the bankruptcy case.

Brian (NY)

Re: Sub2 Questions - Posted by Jerome

Posted by Jerome on December 07, 2004 at 21:45:46:

  1. yes it could still be purchased sub2 while in Bk but why would you there are to many deal out there that are not in Bk
    2.No the owner do not need permission to sell but it you who would be at the biggest risk with this deal.
  2. The money could be borrow maybe from a private lender but let look at the number on this deal.It Appraise for 155k with 5k to 10k in repairs the amount owed is 138.5k with a back pay of 10.5k and the seller want 5k. if you add it up that about 164k your into it nearly 10k above the appraise value I would say this is not a good sub2 to pursue now maybe a short sale would be more fesiable. Good luck in your investing.
    P.S. do not become a motivated buyer, look only for motivated seller.

Re: Sub2 Questions - Posted by Jerome

Posted by Jerome on December 08, 2004 at 12:09:34:

The question was can I purchases the property sub2 while it is in BK. Again I would say yes because operating under Sub2 your not asking for permission your agreed to handle the mortgage and all other attachments that come with that mortgages so if it in Bk you can also pay the the fee associated with it every month until the mortgage is back in proper order. Who to say a friend or relative can not assist each other with finances all the attorney and mortgage company want is for the payment agreed on to be paid. However I would not go through the trouble unless it was a good deal and as I said before this one is not.

Re: Sub2 Questions - Posted by kelly

Posted by kelly on December 08, 2004 at 12:55:10:

No it can not be purchased without the BK trustee’s approval. From the instant that the owner files BK, the trustee has power and in effect legal title over the property and its disposition.

Re: Sub2 Questions - Posted by B.L.Renfrow

Posted by B.L.Renfrow on December 08, 2004 at 17:49:32:

Then you would be mistaken. The federal bankruptcy code is very specific on the matter: the debtor cannot sell, transfer or otherwise dispose of any asset valued at more than $100 without trustee approval while the BK is in effect.

You could argue until you’re blue in the face that you are just “agreeing to handle the mortgage” or whatever, but the court and trustee would see right through that. Once the debtor deeds the property away, he’s in violation if the trustee has not approved.

I realize one might do this and happen to get away with it, but that doesn’t mean it’s a sound recommendation. People get away with lots of things which are illegal, immoral or worse. That doesn’t mean it’s a smart move to recommend an underhanded – and illegal – tactic on a public newsgroup where lots of inexperienced folks may see it and think it’s acceptable practice.

Brian (NY)