Posted by JohnBoy on July 29, 2001 at 15:55:45:
I think there are some potential problems that would still exist with this.
One will depend on WHEN the property was transfered to a trust. If the property has equity worth going after the BK court could recind the transfer and force a sale of the property. That will all depend on the equity involved and how much time has passed from when the owner transfered to a trust from the time they filed BK. The court can go back and recind the deal if the property had transfered within a year from the date the owner files BK.
The next problem is if the owner files BK and claims the lender as a creditor in which they intend to have their debt discharged in the BK. IF the borrower has the debt discharged in the BK the lender could call the loan due and/or foreclose to take the property back so they can resell it to protect their interest.
The theory is that the lender won’t call the loan as long as the payments are being made and are current. That may be the wise thing for the lender to do, but it certainly doesn’t obligate them to do so! IF the lender calls the loan then one of the beneficiaries could step up and sign for a new loan with the bank, or get a new loan to pay off the bank foreclosing, or sell the property to pay off the bank.
But what IF none of the beneficiaries could get a new loan or couldn’t qualify with the existing bank to sign for a new loan or assume the existing loan? What could they do? Sell the property? What IF they couldn’t sell the propert in time? What happens then?
Does the lender lose it’s right to protect it’s interest by being able to foreclose after the borrower has been discharged from the owing on the debt, just because it’s in a PACTrust??? My guess is, NO, it would not. The lender has the right to protect their interest as a secured creditor by calling the loan due and foreclosing to get the property back regardless of what has been transfered to who or what!
If I’m wrong then explain it to me how a lender would automatically lose their rights to foreclose after the borrower has been discharged from owing on the debt???
If enough time has passed to where the transfer couldn’t be recinded by the BK court, then any equity that belongs to the debtor could be attached to where their equity would go to the court when the property is eventually sold. The court couldn’t force the sale because of the other unrelated beneficiaries in the trust. Their shares couldn’t be attached by the court. That still leaves the problem with the lender calling the loan if the borrower has it discharged in the BK.
But this will all depend on how much time has passed from when the transfer took place vs. when the owner filed BK.