Posted by JohnBoy on February 10, 2005 at 08:48:04:
Why is the house being released from the BK?
Is it because the lender motioned the court to get a lift of stay?
Is it because the debtor motioned to release the house to sell to this other buyer?
We’re talking about $54k in equity here. That’s a lot of money for the court to just let loose of unless the homestead exemption allows most of that to be exempt from creditors. Or maybe the court is releasing it to be sold where they are expecting to get some of that equity.
If it’s released because the debtor chose not to reaffirm the mortgage and the lender motioned to have the stay lifted then it sounds like you may not have much to worry about at this point. I would wait until it is completely released before doing anything else.
If the court is releasing it because the debtor chose not to reaffirm where the lender got a lift of stay then it is likely the court will not bother with anything regarding the house being deeded to you.
Where you could possibly run into a problem is with the seller. If the seller has a buyer willing to pay more this could end up in court to fight out who is entitled to the property. The seller can argue the transfer to you was not a legal transfer since the court had control of his assets at that time and any transfers made during the Bk without the court’s approval is not valid. So you will need to make sure there isn’t going to be an issue with the seller willing to go to court and fight over the transfer he made to you while the house was in BK.
As far as the other $7k in debts, the only way you could get stuck with having to pay that is if there is a lien against the property for those debts. If any of those creditors obtained a civil judgement against the seller then those judgements would attach to the property. If no judgements or liens pertain to the $7k in debts then you shouldn’t have anything to worry about.
Before I did anything as far as paying off the first after the house is dismissed I’d make sure there isn’t going to be a problem with the seller coming back and trying to fight the transfer he made to you while the house was in BK. Will the seller sign another quit claim deed once the house is released from the BK? That would put you in a much better position to cure any defects in the original transfer which is not a legal transfer since it was tied up in BK at the time and done without the court’s permission.
How much more was the seller offered for the property?
You should consult with a good real estate attorney and one who is well versed in BK law as well.
I was going to purchase a property from someone who is in bankruptcy. I had him quit-claim the property over to me and was going to purchase subject-to existing loan. While I am preparing the purchase contract and the necessary forms, he decides that he wants to sell to someone else because he will make more money. I understand that no one can purchase the property until the court actually releases it. And that hasn’t been done yet. Since I didn’t actually have a purchase contract with the seller who owns the property? Do the new buyers have to deal with me or the seller? Can I be held liable for his mortgage loan since the deed is now in my name? I don’t want to ruin my credit.
Posted by JohnBoy on February 08, 2005 at 12:39:26:
If he signed a quit claim deed over to you then you own the property. He deeded all his interest over to you once he signed and gave you the quit claim deed. I assume the quit claim deed was notarized? Have you recorded it?
Where your problem is going to come in on this is if he quit claimed this to you while he was currently in BK. He cannot transfer any assets to anyone while in BK without first getting written permission from the BK trustee. Doing so without obtaining permission from the trustee is in direct violation of BK laws. You both can get into trouble for this!
As far as being liable for his mortgage, no! You are not legally liable to his lender for his mortgage just because he deeded the property to you. He remains liable for his mortgage until it is paid off. The mortgage still remains as a lien on the property until it is paid. So you would need to eventually pay that off to protect your interest in the property, but any liability for the payments is the seller’s responsibility, not yours.
But the BK court can rule the transfer as an invalid transfer and recind the quit claim since the debtor is in BK and only the trustee at this point has any power to grant permission to authorize any transfers of the debtor’s assets.
What is the property worth? How much is owed on it? What is the homestead exemption for that state? This will determine the amount of equity involved, if any, as to whether the BK trustee may have any interest in taking the property back or not. Given enough equity involved the trustee will want to take the property and have it sold to recovery any equity and use that to pay towards any debts owed to any creditors the debtor has.
Even though the seller may have a better offer, it doesn’t mean it would be of any benefit to the seller if he is currently in BK. It will depend on what the property is worth VS. the selling price VS the homestead exemption allowed VS what he owes on it. As long as the property is sold at or near FMV and any equity he stands to get from it falls within the homestead exemption allowed in his state, then he could keep it all. Any amount that exceeds his homestead exemption allowed would need to be turned over to the BK trustee and used to pay towards any creditors he owes.
The quit claim deed was notarized and recorded. He owes about 96,000.00 on his mortgage. The house will sell for about $150,000.00. I just found out today from his atty that the house will be released from BK in a couple of weeks, then there is a gap in time before it actually goes into foreclosure. At that time could I pay off his mortgage and own the house, since the deed is already in my name? He has about $7,000 in other debts too. Would I be responsible for those if I decided to purchase the house? What kind of trouble can I get into for having this house deeded to me while in BK?? What will they do to me??