trying to buy House In Bankruptcy
Rental Property Investor · Las Vegas, NV · Member since 2017 · 69 posts · 16 votes
I am attempting to buy a house from an owner who is in Bankruptcy. It is a rental property and it is in disrepair, the tenants have not paid for over a year and the owners are $14k in arrears. I talked to the seller today and he is sending my offer to the Trustee. I understand we may need get a motion to sell from the judge. my first offer is to have the seller put the property in a land trust and assign the benificial interest to my LLC, and pay them a fee for this as well as take over the underlying loan, pay the arrears and get the loan reinstated. My second option is to pay cash for the property at the payoff price of $96K. Do you think a Judge would agree to this?? any advice would help
thank you @Ron S. So in terms of less “rare” situations, what are your more favorite and effective lead types, if not BK? What has been working for you recently?
...for others in this thread?
Thanks.
I'm a lender so, I'm not on that side of the fence. I can say from the lender's perspective that we (lenders) have a LOT of control on whether or not a home subject to bankruptcy protection, gets sold through the BK courts. That said, I find that the investor gets the biggest bang for the buck when they are on the courthouse steps with cash in hand ready to purchase at foreclosure sale. Wholesaling isn't the panacea it once was. Short sales are fewer and farther between, and the litmus test required to be a party to a short sale is becoming more difficult. You have to compete on the open market with other potential buyers so, getting the deal and getting A deal isn't what it was. "Pre" foreclosures still exist ("Pre" is kind of a misnomer....it's either in foreclosure or it isn't. I've always kind of chuckled at the "Pre" designation) but, getting to one and having the time to complete it before sale, and having the numbers work out, require skills and timing that many don't have. In many areas of the country, those preforeclosure contacts also subject you to the label of "foreclosure consultant", which my subject you to licensure and regulation and being ignorant of that, will not provide a defense or protection if it doesn't work out for you and the homeowner. I'd also say, at least from my perspective, "I'm trying to make it a "win win" for everyone is more urban legend than reality. Saying you are saving them from bad credit, you are giving them walking away money, or whatever else your schtick may be to get the homeowner to give you the equity they may have (At the end of the day, you aren't doing the deal for their benefit, you are doing it for your benefit) could put you into a precarious position when dealing with already distressed homeowners. You may get the attention of some regulatory agencies or some relatives that want to know why your "helping" of the homeowner is taking money out of their pocket and putting it into yours. Nothing wrong with that but again, you might get more attention that you want and "helping" them isn't usually the most solid position to approach it from.
Just my two cents for what I see in this neck of the woods.
I am attempting to buy a house from an owner who is in Bankruptcy. It is a rental property and it is in disrepair, the tenants have not paid for over a year and the owners are $14k in arrears. I talked to the seller today and he is sending my offer to the Trustee. I understand we may need get a motion to sell from the judge. my first offer is to have the seller put the property in a land trust and assign the benificial interest to my LLC, and pay them a fee for this as well as take over the underlying loan, pay the arrears and get the loan reinstated. My second option is to pay cash for the property at the payoff price of $96K. Do you think a Judge would agree to this?? any advice would help
While the first offer may a great strategy...that isn't going to happen. You'd have a better chance of Donald Trump asking Nancy Pelosi to the prom than you do of taking over an existing loan, especially one on everyone's radar screen. The second option? No way. Not unless the property is only worth $96M.
Haha!!! Thanks, in your opinion what would be a good offer for this distressed property. It’s arc value is 180k with 14k arrears . It needs about 20k in repairs.
I am attempting to buy a house from an owner who is in Bankruptcy. It is a rental property and it is in disrepair, the tenants have not paid for over a year and the owners are $14k in arrears. I talked to the seller today and he is sending my offer to the Trustee. I understand we may need get a motion to sell from the judge. my first offer is to have the seller put the property in a land trust and assign the benificial interest to my LLC, and pay them a fee for this as well as take over the underlying loan, pay the arrears and get the loan reinstated. My second option is to pay cash for the property at the payoff price of $96K. Do you think a Judge would agree to this?? any advice would help
That depends if it's a CH13 BK and the seller is paying his payments. If so, try and find out who the lender is on this property. If it's not one of the big banks, then they may be open to an offer to pay the UPB and Arrearages. We have one in BK right now, and I'd gladly take the UPB and arrearage payment if someone came along and offered it in one fell swoop. That would put our IRR through the roof, rather then wait 5 years to have all arrearages paid off.
You should see in the voluntary petition (PACER account) who the lender is on the house and try to buy the existing mortgage/DOT and work it that way as Chad said if this is not a big bank. Or you could take the house subject to, it's a much easier process and the borrowers attorney will understand the process. Also in PACER you will see if the borrower was willing to forfeit the property, that makes the subject to process very easy
Have fun!
You should see in the voluntary petition (PACER account) who the lender is on the house and try to buy the existing mortgage/DOT and work it that way as Chad said if this is not a big bank. Or you could take the house subject to, it's a much easier process and the borrowers attorney will understand the process. Also in PACER you will see if the borrower was willing to forfeit the property, that makes the subject to process very easy
Have fun!
Nothing happens that isn't done by the trustee and the trustee only. Thinking someone is going to negotiate with the bank while a borrower is in bankruptcy is naïve. The trustee won't allow it. The bank won't allow it. Isn't going to happen. Big bank, little bank, whatever, isn't going to happen.
Borrower's intent to surrender on the schedules in PACER does not make the subject to process easy. yeah yeah, I'm sure you've done it before successfully. Of course. Or, you know someone that has and in either case, I'll tell you no, you didn't and that no, it didn't happen that way.
Chapter 5, 9, 7, 11, 12, 13...whatever case it is, nothing is happening to any asset subject to control of the trustee without the trustee saying so, and that's gonna take a hearing in every situation that I've ever experienced. And any asset with a dime of equity surely isn't going to be abandoned by the trustee so someone like you can profit from it. If there is equity, usually, the trustee sells it and settles with creditors (carve out, etc.). If there is no equity, and/or the borrower intends to surrender, NO, you don't' get to take it subject to. Notice of intent to surrender is filed with the trustee and after the hearing, the trustee agrees to abandon the asset from their control and that only means the bank can continue with default (If it's in default, continue, if its not in default to start default). That doesn't mean some 3rd party gets to come in and take over the loan.
Selling or assigning mortgages that are in BK happen ALL the time. We've purchased several in the past few months alone.
Not without the trustee and the bank approving it. As my post started out saying, the trustee runs the show. You aren't talking to the bank or the borrower without the trustee abandoning the asset in the bankruptcy. The trustee isn't abandoning the asset if there is any equity to distribute sales proceeds to other creditors.
It sounds as if you are the lender in your scenario. If that's the case and you are negotiating the sale of an asset under control of a Federal Bankruptcy Court, that you do not own, I see trouble in your future. If you aren't doing that but instead are assigning your rights or acquiring the rights of the note of another, that's completely different than what we are talking about. Even doing that, you are still going to have to notice the courts. Look at the title of the original posting...The OP wants to buy a HOUSE, not a note. YOU are talking about notes. Let's make sure we are talking about the same thing.
Thanks for your advice, I’m looking into the lender now. I want to purchase the deed, and pay the arrears. I am in discussion with the trustee. I believe they are hoping to sell the house at close to market value. I was wondering how much influence the owners have in the transaction
Thanks for your advice, I’m looking into the lender now. I want to purchase the deed, and pay the arrears. I am in discussion with the trustee. I believe they are hoping to sell the house at close to market value. I was wondering how much influence the owners have in the transaction
Ah..ok. So, now it's the note? That's different than what you originally posted. If you purchase the deed, why would you pay the arrears? Purchasing the deed puts you into the place of the lender. As the lender you have certain rights of course but also, certain obligations. So you want to buy the note that is delinquent and then bring your own note current? What purpose would that serve? You would be a lender with a current loan. Your only benefit in that scenario would be to collect payments, apply them to the loan and service it till paid off or in the event of default, foreclose, judicially or non judicially depending on the state/jurisdiction.
Farther along in this post you state the trustee is hoping to sell the "House" at close to market value? So, you are going to purchase the "deed" which is encumbered by a note that won't give you clear and marketable ownership? What's your objective? That the trustee will sell the property to pay off the note secured by a deed of trust? Sell it to who? To you? If not to you, to someone else? Which would mean your deed would transfer to the buyer wouldn't it if they sold it to someone else?
Maybe it's me...Maybe I'm just dense but we went from "buying a house in bankruptcy" to now buying deeds on property the trustee controls.
Ok , I guess I am being unclear,I’ll try again. I am trying to purchase the house from a guy that is in bankruptcy for 130k It’s arv is 190 k. They have not paid the lender in 2 years and are 14k in arrears. the owner told me to negotiate with the trustee. I would like to know what s reasonable offer would be and if it’s worth the trouble. Will the trustee even consider my offer?
Ok , I guess I am being unclear,I’ll try again. I am trying to purchase the house from a guy that is in bankruptcy for 130k It’s arv is 190 k. They have not paid the lender in 2 years and are 14k in arrears. the owner told me to negotiate with the trustee. I would like to know what s reasonable offer would be and if it’s worth the trouble. Will the trustee even consider my offer?
Now it's clear. No. I don't see this strategy working. The trustee has a fiduciary duty to list the property on the open market, and sell it for as much as possible to distribute excess proceeds to other creditors within the bankruptcy. Considering the property has equity, dealing with directly and only you, could subject the trustee to claims of preferential treatment. The trustee will have to file a motion/notice with the intent to sell it to you, letting all creditors and interested parties know and giving them all an opportunity to object. If I were a creditor, I would absolutely object to the proposed sale unless that property was being sold for $190K.
Based on your clarifying info, I see this going two ways: Option 1) the lender will file a motion for relief, allowing the property to be pulled out of the BK so that they may proceed with foreclosure. That will mean if you want it, you have to show up at the courthouse steps and bid on it with the rest of the world and pay cash for it. Option 2) The bankruptcy court/trustee will file a motion to sell, naming an agent, a list price, a marketing time, a commission structure, etc.. I see Option 2 being the route that is most often chosen if there is equity. This option eliminates your interest in it because you think you're gonna get it for a deal. You aren't. You'll pay fair market value.
My two cents is if you want the house because you want the house, buy it at foreclosure or, buy it from the trustee's agent when its listed. If you want it because you think you're going to get it for $130K, I'd move on to the next deal as that isn't reality.
Thanks so much for this info, very much appreciated.
Thanks for this very informative back-and-forth. So, basically what you're saying, @Ron S., is that buying properties via the bankruptcy proceedings actually isn't ever a profitable route for a real estate investor. Am I understanding correctly? If there is equity in the house, then the trustee will be listing the house in order to get full market value. So is there ever any situation where one can find attractively priced properties via the BK courts?
Thanks for this very informative back-and-forth. So, basically what you're saying, @Ron S., is that buying properties via the bankruptcy proceedings actually isn't ever a profitable route for a real estate investor. Am I understanding correctly? If there is equity in the house, then the trustee will be listing the house in order to get full market value. So is there ever any situation where one can find attractively priced properties via the BK courts?
I'm sure there is always that chance but why are you concentrating your efforts on the rarest of the rare situations in a bankruptcy court?
Based on my experience working with a large financial institution in the BK space, the Motions to Sell and acquire property through a BK are never quick and easy.
thank you @Ron S. So in terms of less “rare” situations, what are your more favorite and effective lead types, if not BK? What has been working for you recently?
...for others in this thread?
Thanks.
thank you @Ron S. So in terms of less “rare” situations, what are your more favorite and effective lead types, if not BK? What has been working for you recently?
...for others in this thread?
Thanks.
I'm a lender so, I'm not on that side of the fence. I can say from the lender's perspective that we (lenders) have a LOT of control on whether or not a home subject to bankruptcy protection, gets sold through the BK courts. That said, I find that the investor gets the biggest bang for the buck when they are on the courthouse steps with cash in hand ready to purchase at foreclosure sale. Wholesaling isn't the panacea it once was. Short sales are fewer and farther between, and the litmus test required to be a party to a short sale is becoming more difficult. You have to compete on the open market with other potential buyers so, getting the deal and getting A deal isn't what it was. "Pre" foreclosures still exist ("Pre" is kind of a misnomer....it's either in foreclosure or it isn't. I've always kind of chuckled at the "Pre" designation) but, getting to one and having the time to complete it before sale, and having the numbers work out, require skills and timing that many don't have. In many areas of the country, those preforeclosure contacts also subject you to the label of "foreclosure consultant", which my subject you to licensure and regulation and being ignorant of that, will not provide a defense or protection if it doesn't work out for you and the homeowner. I'd also say, at least from my perspective, "I'm trying to make it a "win win" for everyone is more urban legend than reality. Saying you are saving them from bad credit, you are giving them walking away money, or whatever else your schtick may be to get the homeowner to give you the equity they may have (At the end of the day, you aren't doing the deal for their benefit, you are doing it for your benefit) could put you into a precarious position when dealing with already distressed homeowners. You may get the attention of some regulatory agencies or some relatives that want to know why your "helping" of the homeowner is taking money out of their pocket and putting it into yours. Nothing wrong with that but again, you might get more attention that you want and "helping" them isn't usually the most solid position to approach it from.
Just my two cents for what I see in this neck of the woods.
Ok , I guess I am being unclear,I’ll try again. I am trying to purchase the house from a guy that is in bankruptcy for 130k It’s arv is 190 k. They have not paid the lender in 2 years and are 14k in arrears. the owner told me to negotiate with the trustee. I would like to know what s reasonable offer would be and if it’s worth the trouble. Will the trustee even consider my offer?
Now it's clear. No. I don't see this strategy working. The trustee has a fiduciary duty to list the property on the open market, and sell it for as much as possible to distribute excess proceeds to other creditors within the bankruptcy. Considering the property has equity, dealing with directly and only you, could subject the trustee to claims of preferential treatment. The trustee will have to file a motion/notice with the intent to sell it to you, letting all creditors and interested parties know and giving them all an opportunity to object. If I were a creditor, I would absolutely object to the proposed sale unless that property was being sold for $190K.
Based on your clarifying info, I see this going two ways: Option 1) the lender will file a motion for relief, allowing the property to be pulled out of the BK so that they may proceed with foreclosure. That will mean if you want it, you have to show up at the courthouse steps and bid on it with the rest of the world and pay cash for it. Option 2) The bankruptcy court/trustee will file a motion to sell, naming an agent, a list price, a marketing time, a commission structure, etc.. I see Option 2 being the route that is most often chosen if there is equity. This option eliminates your interest in it because you think you're gonna get it for a deal. You aren't. You'll pay fair market value.
My two cents is if you want the house because you want the house, buy it at foreclosure or, buy it from the trustee's agent when its listed. If you want it because you think you're going to get it for $130K, I'd move on to the next deal as that isn't reality.
@Ron S has a pretty accurate assessment of the situation (considerations on purchasing deeds in bankruptcy). I represent lenders in bankruptcy court and really only see some version of his Options 1 and 2.