I am a private money lender. Borrower keeps filing bankruptcy

29 Replies

Hello experts,

I lent money to a borrower to buy a property in Chicago. But he stopped interest payments after few months and didn't pay anything after loan maturity.  I then engaged an attorney to proceed with foreclosure. He went to file Chapter 13 bankruptcy (Pro Se). But later the bankruptcy was dismissed by the judge.  So, my attorney proceeded with foreclosure, he then hired an attorney to file for another chapter 13 bankruptcy.  He has no money to pay as he has very low income with high debts. However he managed to come out with bogus payment plans to the trustee.  I am trying to get my attorney to file motion to object automatic stay.  Anybody knows what will be my chance to succeed in a case like this - can a borrower keeps filing bankruptcy to avoid foreclosure?

Kindly help.  Thanks much.

Regarding "Anybody knows what will be my chance to succeed in a case like this..." I don't have a clue. Way too many unkowns for me to comment on, especially on your first post.

But from what I see, like "He has no money to pay as he has very low income with high debts"... and "he stopped interest payments after few months"... I've got to wonder what unmentioned and unposted arrangements you had with said borrower? That's probably way more interesting than the standard I got taken by the borrower...

BTW, Welcome to BP!!

@Alice C.   just have to keep at it.. have you offered him a Deed I Lui pay him or her a little money?

foreclosure in IL is long drawn out and expensive. 

Is he just ripping the rents on you.. do you have an assignment of rents clause in your debt instrument?  If so try to enforce that.

What does the attorney who did the foreclosure say about it? If the attorney who did your foreclosure does not know, consult a bankruptcy attorney in your area. Although Bankruptcy is a Federal Law it does vary some what state by state with local rules and customs.

If you already foreclosed and all that paperwork is in order and filed, he does not own the property anymore and a bankruptcy should not effect you any further as far as that goes. It may stop you from an eviction but that is an other issue. Now if he were to bring a suit in state court that there was a wrongful foreclosure, that is a different matter that can tie you up (or at least it can in Massachusetts) 

That being said, in general, the court will not put up with a serial filer. I believe that there is something in the law that states the automatic stay is only good for 60 days if a bankruptcy is filed after a previous one is is dismissed without a discharge. That may be a local rule so again, check with a local attorney.

Thanks Jay. You are so right. Yes, it is very expensive.

In the contract it does say "rent assignment" and the property is investment property. But  he claimed to the judge it is his primary resident! Yes, he lives in there! Somehow my attorney said it is better for the case...

The borrower is a RE broker. 

I think the more I know, the worse it gets. There is a reason most of us never lend to a human but instead to a company (e.g. LLC). TAKE NOTE all you private lenders or lender wanna-bees. A person can say (pretend or not) 'it's a primary residence'... but that won't work with a company (e.g. LLC). I still don't know enough to post what I thought I would initially post... can you spot the 10 things to NOT do when acting as a private lender? Maybe another post, if I can find the time.

Originally posted by @Alice C. :

Thanks Chris! The reason I lent to him because the property had very good equity = high LTV.

I think you mean LOW LTV, right? good equity means LOW loan to value. Hey, what do I know. At least that's the way a hick from NC like me knows it.

@Alice C. Do you have any boots on the ground in Chicago?  Someone who can check on the status of the property for you?

Did you receive the notice to creditors?

From my experience, BK judges have little patience for petitioners playing games.  If you can show that he is not living there and lying to the judge, the whole thing may get tossed out.  Moreover, if this is a rehab project, you may be able to demonstrate that it is not habitable, hence an investment property.

Finally, your attorney should be able to ask the judge for a release of stay on the subject property so you can proceed with the foreclosure. 

All private money/hard money loans I've used require affidavits where I attest that I'm borrowing against an investment property not a personal residence.  This is mostly for Dodd Frank, but look at your docs and see if that's in there.

Good luck.

@Alice C.  is right.  The foreclosure process in Illinois can be very drawn out.   Finding a way to make him want to drop the fight would probably be the cheapest and quickest way to go.  

I'm going to PM you.  Depending on the deal, maybe we could assist you buying him out and finishing the project with you.

@Alice C.   if its truly owner occ and was when you made the loan you have another set of issues. IE safe act.  If you lent to him as an investment then half way into it he moves in but the purpose up front was commercial.. you need to demonstrate that.

Hi Alice

There is an attorney and his name is Bob Diamond Diamondlawcenter.com I have not had any dealings with him in about seven years or more, but he use to be a very good real estate non-guru at that time. He is very intelligent in making money with real estate and owns a a lot of properties, but after his brother joined him in business he turned him into a marketing machine.

I don't think it is very likely that you would get to speak with him directly any more, but you can try because he may very well also be able to direct you to an attorney in you area as he a large attorney network. 

As an alternative to this you can try Martindale-Hubbell http://www.martindale.com This is a site where you can find an attorney or law firm in a state and city you need. You can search by practice areas (real estate, bankruptcy, etc.) It also gives peer review ratings and client ratings. So you could use this to check on the attorney you are currently using. 

I hope this will help you.

Jack

also there is the The Illinois Real Estate Lawyers Association http://www.irela.org

This bar focuses strictly on real estate and you can also do an attorney search in their site.

Again I hope this helps.

Jack

Once the court approves a repayment plan that could be in your favor. If they miss a payment, I believe your attorney can file to have the bankruptcy plan tossed. It sounds like your borrower may be experienced at this. Keep in touch with the lawyer and stay on it. Either you will get your money or get him gone. FYI, if you are in violation of Dodd-Frank you better hope an experienced attorney doesn't catch on. They will rip you apart and in some instances I believe the loan can be forgiven re: you lose it all. Add in the fines possible from the CFPB and you got BIG issues. It pays to be knowledgeable about DF and have a GOOD attorney who knows the laws to help keep you out of trouble. Bad borrowers that want to screw people over often know the game better than the private or HM lenders do. I see a lot of guys wanting to do private loans advertising "non-owner occupied" properties only but that doesn't stop someone from going into the deal as an investor and then moving in crying foul. A lot of these possible scenarios haven't been fought in court yet but give it time!

I have your answers, from experience in dealing with CHICAGO.  I have both of your issues happen to me, but I didn't lend any money.  I will explain...

First, filing a Chapter 13 is such a great idea.  It buys him a couple of months and putting off the foreclosure proces.  Then, a judge dismisses the case because he didn't even show up to the hearing.  He just had to pay the filing fee and if he is a bum, he can get the court fee waived.  Then, once the case is dismissed he can refile him self again.  When people say the judges / trustee's wont put up with that, that might be the case in other states  but here in our particular city you can do it how ever many times you want.   I know this from personal experience.  I rented to a tenant that had great income but a Chapter 7 was on her record.  I thought this was great because all this means is that she cant file again for 7 years and list me as a creditor, which has been done to me before.   So I rented to her, evicted, her and started to garnish her wages.  She then filed a Chapter 13  5 times in a row.  Finally, a trustee bared her for 180 days.  You know what happened after the 181st day??? She did it again.  After it was dismissed every time I would just resubmit the paper work to her company to continue with the wage deduction.  She finally gave up.  

If I were you I would hire an attorney to go to the BK hearing and either possibly lift the automatic stay if this loser keeps on doing this or ask the judge to bar this guy from filing for 180 days.  

Eveyrone is right about the foreclosure process taking some time here in Chicago.  I will message you my attorney who knows both sides of BK, evicting, foreclosures.  He is a specialist in all of the things I listed and he has played both sides of the coin.  

Originally posted by @Alice C. :

Thanks Jay. You are so right. Yes, it is very expensive.

In the contract it does say "rent assignment" and the property is investment property. But  he claimed to the judge it is his primary resident! Yes, he lives in there! Somehow my attorney said it is better for the case...

The borrower is a RE broker. 

These other posters know more than me about how to proceed, but if he is a broker you can report him and at least get his license revoked! Just report him to his realtor association. 

Hello All,

Thanks for all your great ideas and suggestions. 

@Chris Martin thanks for correcting me. Low LTV!

PM me should you have any good proposals to work with me in this one. Please do not try to take advantage on my situation :) I prefer win-win.

I have another borrower looking to re-fi before I proceed foreclosure.

Originally posted by @Jack L. :

Hi Alice

There is an attorney and his name is Bob Diamond Diamondlawcenter.com I have not had any dealings with him in about seven years or more, but he use to be a very good real estate non-guru at that time. He is very intelligent in making money with real estate and owns a a lot of properties, but after his brother joined him in business he turned him into a marketing machine.

I don't think it is very likely that you would get to speak with him directly any more, but you can try because he may very well also be able to direct you to an attorney in you area as he a large attorney network. 

As an alternative to this you can try Martindale-Hubbell http://www.martindale.com This is a site where you can find an attorney or law firm in a state and city you need. You can search by practice areas (real estate, bankruptcy, etc.) It also gives peer review ratings and client ratings. So you could use this to check on the attorney you are currently using. 

I hope this will help you.

Jack

 Thanks very much Jack!

Originally posted by @Jack L. :

also there is the The Illinois Real Estate Lawyers Association http://www.irela.org

This bar focuses strictly on real estate and you can also do an attorney search in their site.

Again I hope this helps.

Jack

 Thanks very much Jack!

Originally posted by @Edward Mccracken :

I have your answers, from experience in dealing with CHICAGO.  I have both of your issues happen to me, but I didn't lend any money.  I will explain...

First, filing a Chapter 13 is such a great idea.  It buys him a couple of months and putting off the foreclosure proces.  Then, a judge dismisses the case because he didn't even show up to the hearing.  He just had to pay the filing fee and if he is a bum, he can get the court fee waived.  Then, once the case is dismissed he can refile him self again.  When people say the judges / trustee's wont put up with that, that might be the case in other states  but here in our particular city you can do it how ever many times you want.   I know this from personal experience.  I rented to a tenant that had great income but a Chapter 7 was on her record.  I thought this was great because all this means is that she cant file again for 7 years and list me as a creditor, which has been done to me before.   So I rented to her, evicted, her and started to garnish her wages.  She then filed a Chapter 13  5 times in a row.  Finally, a trustee bared her for 180 days.  You know what happened after the 181st day??? She did it again.  After it was dismissed every time I would just resubmit the paper work to her company to continue with the wage deduction.  She finally gave up.  

If I were you I would hire an attorney to go to the BK hearing and either possibly lift the automatic stay if this loser keeps on doing this or ask the judge to bar this guy from filing for 180 days.  

Eveyrone is right about the foreclosure process taking some time here in Chicago.  I will message you my attorney who knows both sides of BK, evicting, foreclosures.  He is a specialist in all of the things I listed and he has played both sides of the coin.  

Hello Edward,

Could you kindly message me your attorney info? Thanks in advance.

Originally posted by @Edward Mccracken :

I have your answers, from experience in dealing with CHICAGO.  I have both of your issues happen to me, but I didn't lend any money.  I will explain...

First, filing a Chapter 13 is such a great idea.  It buys him a couple of months and putting off the foreclosure proces.  Then, a judge dismisses the case because he didn't even show up to the hearing.  He just had to pay the filing fee and if he is a bum, he can get the court fee waived.  Then, once the case is dismissed he can refile him self again.  When people say the judges / trustee's wont put up with that, that might be the case in other states  but here in our particular city you can do it how ever many times you want.   I know this from personal experience.  I rented to a tenant that had great income but a Chapter 7 was on her record.  I thought this was great because all this means is that she cant file again for 7 years and list me as a creditor, which has been done to me before.   So I rented to her, evicted, her and started to garnish her wages.  She then filed a Chapter 13  5 times in a row.  Finally, a trustee bared her for 180 days.  You know what happened after the 181st day??? She did it again.  After it was dismissed every time I would just resubmit the paper work to her company to continue with the wage deduction.  She finally gave up.  

If I were you I would hire an attorney to go to the BK hearing and either possibly lift the automatic stay if this loser keeps on doing this or ask the judge to bar this guy from filing for 180 days.  

Eveyrone is right about the foreclosure process taking some time here in Chicago.  I will message you my attorney who knows both sides of BK, evicting, foreclosures.  He is a specialist in all of the things I listed and he has played both sides of the coin.  

Hello Edward, would you be able to provide me your attorney's info?  Thanks much!

Originally posted by @Jack L. :

also there is the The Illinois Real Estate Lawyers Association http://www.irela.org

This bar focuses strictly on real estate and you can also do an attorney search in their site.

Again I hope this helps.

Jack

 Again thanks Jack!

Just hire a bankruptcy attorney that represents creditors. A real estate attorney that does not specialize in bankruptcy law will do nothing but waste your money. You have a repeat multiple filer you are dealing with and a half decent BK attorney knows what to say and what to file. You need relief from stay so you can proceed with your foreclosure. That's all and that's your first priority since you can't talk with the borrower or negotiate with the borrower until then. You can't call a truce, and you can't say or agree to handle this outside of the BK since the property now belongs to the BK trustee and unless/until the trustee abandons it, it's theirs.

THEN, once you get relief, you may have to deal with all of the issues related to being a lender. Since you are now a lender, you may be subject to the same rules that BofA, Chase, HSBC and the other big players out there are subject to and if you screwed up anywhere in the process, you could have a bigger issue on your hands than you wanted. THAT'S when you need a real estate attorney. Did he ask for a loan modification? Did you inform him by the 45th day of delinquency that there may be help available to him in the form of alternatives to foreclosure? Did you document a minimum of three contact efforts by phone or mail by the 36th day of delinquency? Did you send a breach notice to him certified, and in the requisite font type and size on your letter? Did you wait until the 120th day of delinquency before filing the first legal notice?

Maybe you have an exemption from some of the servicer requirements as a "Small Servicer". Maybe you don't. I would let an attorney opine as to which applies. Maybe, once you get relief, you try to settle and do a deed in lieu. Maybe this real estate broker is smart and is counting on you violating some rule you weren't aware of because you are not an institutional investor and is setting you up to get a free house after he sues you and wins. I'd get the BK stuff out of the way, then get your real estate attorney to sit down with you and hammer out a battle plan sooner than later.

just my two cents.