Purchased property at auction and previous owner had bankruptcy filed

6 Replies

Hello,

I recently purchased a property at the auction in Virginia on May 28. There are people currently living at the property. The previous owner informed me that he had filed a chapter 7 and 13 bankruptcy for which there is a hearing on July 23. He also said that he had filed a lawsuit to the lender because he had a hearing on June 24. I called the law firm who did the auction and they said that everything was clear from their bankruptcy attorney for the property that I purchased.

Today, I went through the sheriff's office to start the 30 day notice for eviction. What kind of suggestion would you have that I should from here? Any suggestion and advice would be greatly appreciated. Thank you!

That's a tricky one. Bankruptcy always hoses things up. First off I'd consult with a real estate attorney and get their take on all this. The determining factor for whether or not the bankruptcy is going to matter is if the bankruptcy was filed before or after the property was struck off at auction. 

Then there's the matter of the suit against the lender. Do you know what the nature of the suit is? If it's just a "we think you're a mean, evil corporation." then you may not have much to worry about. If it alleges that the law was not followed in the foreclosure process then you may be in trouble.

I know some auction houses in some instances will actually issue a title policy. If that's the case then you have recourse via that owner's policy to recoup any losses if the previous owners are granted the property from the lawsuit. If not this may just be an expensive lesson in your real estate education.

Start from the bankruptcy side. Ask the previous owner for the case number. If you have his name, you can look it up at www.pacer.gov. If there is a case number, you should get an attorney asap. The bank may have done what it needed to do to pull the property out of the bankruptcy but you do not want to make that determination on your own.

Jim and Paul, thank you both for your response. appreciate your input very much. I will find out more information about the bankruptcy. 

Would you be able to share bit more information/consequences of of whether bankruptcy was filed before or after the sale of the property. In terms of expense, time, and effort. In regards to the law suit, I was mistaken. I thought they had already filed the suit against the lender but that was not correct. They are going to file it but I am uncertain about the circumstances. From what the previous owner said, he had a hearing on July 24 and he was unaware of the sale of the property.

Also, can I purchase the title insurance at this point? Thank you so much!

It's likely nothing to worry about.  You should e able to determine if a relief from the stay was granted, which it likely was, to allow the foreclosure to proceed.  Read the foreclosure file.  Owners can often be delusional about their position, particularly the ones who want to sue their lender for all the injustices bestowed upon them.

I second what @Wayne Brooks said. I am a bankruptcy attorney on the debtor's side. The main issue you want to avoid is violating the automatic stay of bankruptcy. As Wayne said, you need to make sure the stay was lifted in the bankruptcy and then you are free of any restrictions imposed by the bankruptcy (or bankruptcies- they may be trying to play games with multiple filings). 

Timing is very important as bankruptcy filings can invalidate auction results if it was filed at the right time. I have filed 30 minutes before a sheriff's sale. The sale was held but it was legally void because of when I filed. I can't tell you when that is for your state as I do not know. They mentioned multiple filings and hearing dates and there are restrictions on how long the stay lasts for the 2nd and any other filings. It is important to get an attorney involved. Motions for relief from the stay can stop this tactic but just be sure what is going on. The hearing dates sound like this is an active process.

Getting title insurance will be a way to work all of this out as the title examiner will have to verify all of the proper steps were taken to get the property out of the bankruptcy and the foreclosure was also done correctly. A bankruptcy attorney can tell you in 30 minutes where it is at.

I would take threats of lawsuits against mortgage companies with a grain of salt. Most people who lose their homes are mad and the majority of the time it is for nonpayment. Not much a court will do with that. Bankruptcy is a different matter.

Good luck!

@Rehana Shrestha

  as others have chimed in if here was a BK prior to the auction even 1 minute.. then you usually just get your check back with a letter stating the sale was no good.

If they kept your funds and insist its a good sale then. buy title insurance right now..that will tell you were your at.

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