What do you do when your seller files for BK?

[Jasmine Willois]

Just wondering if anyone out there knows what to do when your seller goes out of business, specifically files for BK and you need additional transfer docs or re-executed assignments? This has happened to a pretty established note investor I know and has jeopardized his entire existence and success record. One of our members had the same issue but we resolved it fairly quickly. Looking to see if this has happened to anyone else and if they found any workarounds. 

[Don Konipol]

@Jasmine Willois

A claim needs to be filed within 90 days with the bankruptcy court. Usually, the debtor will list the debt on their listing of liabilities. A bankruptcy provides an automatic stay on any foreclosure process. The lender can petition the court to lift the stay, but if any equity exists in the property above the indebtness the court will deny the relief of lift and the lender will be dealt with in the course of the bankruptcy. The lender will have the right to plead objections to any part of the bankruptcy plan. As you can see an attorney, licensed to practice law in FEDERAL court will need to be engaged.

[Andy Mirza]

@Jasmine Willois Are you referring to a previous lender who goes out of business and there's no one left to execute documents for you, as the end buyer of a loan that they once owned?

If so, I'd be interested in the same answer.

In one of our cases, the lender went out of business but was bought by someone else and that entity was able to execute docs on their behalf.

In another situation, we ran into a dead end because we could never find someone who was authorized to execute docs and the defunct entity's behalf.

[Ned Carey]

@Andy Mirza I am not an attorney but I have to deal with people in BK all the time. 

In the example you mention where the person in BK is selling notes he or she owned, It would go through the bankruptcy court. It would depend on what kind of bankruptcy. In a reorganization the court would need to approve the sale. Another option would be to wait for the BK to be over. In a liquidation BK the assets would be auctioned off. 

In the case of a business shutting down, most states allow a period of time for the company to "wind down" affairs and sell assets after they have closed. 

@Jasmine Willois you need to find out more details of they type of bankruptcy and the exact situation. 

[Jay Hinrichs]

Originally posted by @Andy Mirza:

@Jasmine Willois Are you referring to a previous lender who goes out of business and there's no one left to execute documents for you, as the end buyer of a loan that they once owned?

If so, I'd be interested in the same answer.

In one of our cases, the lender went out of business but was bought by someone else and that entity was able to execute docs on their behalf.

In another situation, we ran into a dead end because we could never find someone who was authorized to execute docs and the defunct entity's behalf.

WE had this happen on a deal in CA where it was a HML with a small loan on our property 30k.. loan was never re conveyed so we bonded around it. But it is a case by case and depends on the title company if they will accept it etc.. other wise i think its a quiet title action.

BK has a clear cut process.

[Jasmine Willois]

Quote from @Don Konipol:

@Jasmine Willois

A claim needs to be filed within 90 days with the bankruptcy court. Usually, the debtor will list the debt on their listing of liabilities. A bankruptcy provides an automatic stay on any foreclosure process. The lender can petition the court to lift the stay, but if any equity exists in the property above the indebtness the court will deny the relief of lift and the lender will be dealt with in the course of the bankruptcy. The lender will have the right to plead objections to any part of the bankruptcy plan. As you can see an attorney, licensed to practice law in FEDERAL court will need to be engaged.

 Thanks, but I do not think you understand the question. 

[Jasmine Willois]

I am not sure the question was posed correctly as most of these answers do not apply. I appreciate the help. 

[Chris Seveney]

I have had to deal with this in the past reviewing collateral with Stewardship Fund (link below) and missing allonges. Unfortunately the receivership had closed and I reached out to multiple people who were involved and basically told me I was SOL. So I did not buy the assets. I know some people who did and basically they were not able to foreclose in certain states because they could not prove ownership of the note because of missing allonge chain.

In this instance there was no receiver to sign so there was nothing that could be done to recreate the docs.

SEC Complaint: James G. Temme and Stewardship Fund LP