Sue Attorney for recommending foreclosure? - Posted by DavidGOR

Real Estate Investing Real Estate Law
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Posted by Frank Chin on December 16, 2004 at 08:06:35:

Dave:

You may have thought thru the matter from your perspective, but you’ll have to think through the matter from the creditors and trustee’s perspective.

I could see the following issues coming up if the trustee goes to the creditors with your proposal:

1- Bank would be told house is deeded to an outside investor triggering DOS. Bank may be ahead on a few payments assuming the investor can increase the value by 60K investing 10K, and two weeks time - so says the investor.

2- Bankers as a rule look at the downside, which is, what do we get out of it if the investor is wrong?? Are we just taking the word of someone named Dave (who is he??). Wouldn’t we be better off putting this on the market to see what its really worth??

3- Are the “unsecured creditors” only getting $1,000 out of this whole thing if its sold?? If so, I take my chances waiting for the house to be sold at the market prices. If it nets 10K, I’m 10K ahead. If it sells for less than the mortgage, let the bank worry about the deficiency. It seems the house is the only asset the homeowner has.

As an unsecured creditor:

1- I would vote against this because I don’t see any benefit. The $1,000 may be split 10 ways depending on the number of creditors involved, with each unsecured creditor netting $100.00. I would be very annoyed the trustee is bothering me with this nonsense unless he’s getting a commssion out of the 60K.

2- The way I understand this deal is the REI pays the homeowner $1,000 which he’ll have to turn over. The REI may make 60K. For a measely 1K, I say let it go to foreclosure and let some home buyer overpay for it. The way I understand creative RE, the REI would have to lowball the offer so he can make the profits.

The ball game right now is “what’s good for all the creditors”. The creditor’s committee couldn’t care less if this guy goes to foreclosure, and to add insult to injury, the biggest asset will ne turned over to someone named Dave who stands to make 60K on it, and violating DOS to boot.

What nerve.

And from the trustee’s perspective:

Based on the above arguments, I’m making the best decsion for all of the creditors, which is my responsibility. I have no responsibility to Dave the investor, who presented an insulting offer, and to the homeowner.

Frank Chin

PS: Nothing personal against you, just thinking out loud as an unsecured creditor. You did mention the homeowner owes 50K.

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Sue Attorney for recommending foreclosure? - Posted by DavidGOR

Posted by DavidGOR on December 13, 2004 at 14:57:46:

I’m working with a person that’s going into foreclosure. His BK (Chap 13, owes $50k) Attorney says that it would be too much work and cost too much to get the sale approved with the creditors and that he should just let the house to go into foreclosure. There’s no equity as the house sits. I plan to give $1k to the person, make up the back payments, and buy sub-2.

This attorney has it set in his mind that a foreclosure is no worse than a BK. Any competent mortgage broker can verify that is so wrong. Can’t he be successfully sued for malpractice if he recommends that the client go into foreclosure? (The damages would be the increased interest that the client would have to pay when he gets another house in a year.)

Also, I need some recommendations on who to talk to who buys homes sub-2 out of bankruptcy. I know there’s a course for it but my time is running out. Any recommendations?

DavidGOR

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Re: Sue Attorney for recommending foreclosure? - Posted by chet

Posted by chet on December 22, 2004 at 10:08:34:

How do you get the mortgage holder and the trustee to agree?

Remember the mortgage holder is a secured creditor.

I have looked at buying (trying) properties in foreclosure out of bankrupcy, and have not had great success.I would be interested in hearing if you do.

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Re: Sue Attorney for recommending foreclosure? - Posted by Frank Chin

Posted by Frank Chin on December 14, 2004 at 14:53:13:

Dave:

Several issues:

1- Agree with Mike that there’s not much equity. So why all this fuss??

2- The trustee’s fudiciary responsibilty is to protect assets for the creditors. If there is any equity, it would be malpractice for him to give it up to an REI.

3- Trustees in this case play a quasi judicial role, and thus enjoy some immunity in making decisions.

4- When dealing with a trustee, your not dealing with an ignorant tired homeowner willing to deed over the house for $1,000. The whole purpose of having a trustee is NOT to allow something like this to happen.

Frank Chin

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Desperate Buyer? - Posted by Mike-OH

Posted by Mike-OH on December 14, 2004 at 06:12:28:

Why would you want to buy a house that has no equity as it sits? This is especially puzzling if you will have to pay the seller, make up the past due amounts, fight the lawyers, etc. There has to be a better deal out there.

Mike

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Re: Sue Attorney for recommending foreclosure? - Posted by DavidGOR

Posted by DavidGOR on December 15, 2004 at 20:33:41:

Not that it really matters but I’ve thought through these issues already.

Several issues:

1- Agree with Mike that there’s not much equity. So why all this fuss??

  • An investment of $10k to finish the basement in 2 weeks would give additional $60k equity above all thats owed. (bringing sqftage up with other houses in the neighborhood)

2- The trustee’s fudiciary responsibilty is to protect assets for the creditors. If there is any equity, it would be malpractice for him to give it up to an REI.

  • there is about $5k equity if a cash buyer bought today.

3- Trustees in this case play a quasi judicial role, and thus enjoy some immunity in making decisions.

  • key word is “enjoy” (even if all other parties lose out)

4- When dealing with a trustee, your not dealing with an ignorant tired homeowner willing to deed over the house for $1,000. The whole purpose of having a trustee is NOT to allow something like this to happen.

  • there isn’t a benefit to ANY parties (bank, homeowner, creditors, trustee, neighborhood, REI, workers) if the house is lost to foreclosure. Lets add up all the benefits: bank - loans get current and eventually paid off, homeowner - foreclosure sale not on credit record, creditors - may get portion of proceeds, stand better chance of getting bk payments, trustee - may get portion of proceeds, neighborhood - home values go up (averaging homes sold in appraisal or CMA), workers - get paid to work, REI - profit.

Seems fair that with all this collective evidence that the trustee would loose a suit.

Maybe I’ll call Tom Martino. Just kidding.

Again, not that it matters for this deal, but I’m curious why you wouldn’t take my position.

DavidGOR

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Re: Desperate Buyer? - Posted by Dave T

Posted by Dave T on December 18, 2004 at 23:13:16:

Really??

In my area of the country, a basement is a basement whether finished or unfinished. A basement does not increase the appraised square footage of the property.

A finished basement might have more appeal to a buyer, but it is still competing with all the other listed properties with a basement that have the same number of bedrooms, bathrooms, and above ground living space.

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Re: Desperate Buyer? - Posted by DavidGOR

Posted by DavidGOR on December 14, 2004 at 13:02:08:

A quick finishing of the basement adds 700sqft which adds $50k net.