Seller Filing Bankruptcy (needs to sell)

7 Replies

I am working with a seller right now, He bought the house a year ago for $127,000 for 3% down. He is selling because he is moving back in with his wife. He owes $119,000 on the house and My purchase price maximum is $95,000 considering the minimal repairs and NOI. The Seller is filing chapter 7 Bankruptcy because he lost a bunch of money with a a bad investment. I don't know a lot about bankruptcy but I'm pretty sure he cant make any money on the sale of the house( the sale of the house is unrelated to the Bankruptcy). I want to work out a deal with the seller that will get him out from under the property. I'm hoping to get some creative ideas from some of you guys. Is a short sale his only option? If so what is the effect of that?

Everything he owns will be a part of the bankruptcy. It's basically all the assets go in, and court divides up any profits amonth the bankruptcy trustee, and creditors. Real Estate usually goes back to lender. You'd probably need to have the short sale approved and deal closed BEFORE he files. He would need to ask his BK attorney.

@Jon Bonczyk Based on your numbers this would be a short sale. You can still attempt a short sale while they are in an active ch 7 BK whether the property is included in it or not. Only makes sense that he will try to discharge the debt of the asset through his first filing though. I sent you a PM. 

I did this on a property last year. I got in touch with the president of the bank who owned the seller's mortgage, and bought the mortgage from them. Then I had the seller sign the property over to me. The bank was more than happy to take a loss on the property, because they knew they were likely to lose more if the owner went through with the bankruptcy. I got a killer deal on the property, the bank got out from under a troubled mortgagee, and the seller avoided bankruptcy. Everybody won.

That's an awesome story @Patrick Strain . I don't think that applies to this situation but good to know about. It is usually very hard to get a hold of the bank. The seller and I did discuss an assumable mortgage until I saw how much he owed on the property. I don't think he could sell the house on the market for more than $110,000. With that he will have to pay the difference and the closing costs out of pocket. It seems like including the property in the Bankruptcy is a good option for him. Does any body have experience with doing that. will the Attorney try to get as much out of the buyer as possible? How long do the bankruptcies usually take? Thanks guys

Originally posted by @Jon Bonczyk :

That's an awesome story @Patrick Strain . I don't think that applies to this situation but good to know about. It is usually very hard to get a hold of the bank. The seller and I did discuss an assumable mortgage until I saw how much he owed on the property. I don't think he could sell the house on the market for more than $110,000. With that he will have to pay the difference and the closing costs out of pocket. It seems like including the property in the Bankruptcy is a good option for him. Does any body have experience with doing that. will the Attorney try to get as much out of the buyer as possible? How long do the bankruptcies usually take? Thanks guys  

Once he files, all assets become part of the bankruptcy estate. He can't sell without court approval. The court can claw back any sale within 6 months prior to filing. At a minimum you are looking at 3 months for a simple chapt 7 bankruptcy. It often times runs 6 months or longer if there are complexities. The bank will probably approve a short sale & the trustee will probably approve a short sale, but it is unlikely he can get any money out of the deal. They will probably require an appraisal be done. A lot is decided based on his ability to repay debt and the other assets, debts and sources of income he has. That won't be decided until he submits all of the paperwork and the trustee and the bank have a chance to review the information.Then there is a hearing which is usually scheduled for 6 weeks later to give a chance for other creditors to file their claims, and any objections.Tortoises move faster than bankruptcy court. Continuations (delays) are common. Learn patience.

 

Originally posted by @Patrick Strain :

I did this on a property last year. I got in touch with the president of the bank who owned the seller's mortgage, and bought the mortgage from them. Then I had the seller sign the property over to me. The bank was more than happy to take a loss on the property, because they knew they were likely to lose more if the owner went through with the bankruptcy. I got a killer deal on the property, the bank got out from under a troubled mortgagee, and the seller avoided bankruptcy. Everybody won. 

Hi Patrick I'm very interested in thjs story. Connecting with u.

 

Originally posted by @Jon Bonczyk :

That's an awesome story @Patrick Strain. I don't think that applies to this situation but good to know about. It is usually very hard to get a hold of the bank. The seller and I did discuss an assumable mortgage until I saw how much he owed on the property. I don't think he could sell the house on the market for more than $110,000. With that he will have to pay the difference and the closing costs out of pocket. It seems like including the property in the Bankruptcy is a good option for him. Does any body have experience with doing that. will the Attorney try to get as much out of the buyer as possible? How long do the bankruptcies usually take? Thanks guys  

Don't be so quick to assume that it's difficult to speak to a bank. Banks sell mortgages all the time. Also, when you buy a mortgage, there are no real closing costs. Of course, if all the paperwork is dry on the seller's bankruptcy, this is all out the window.