Bankruptcy - Mortgage paid off, Debt is less than Offer

[Kelly Beck]

Does anyone have experience purchasing a property where the mortgage is paid off and the seller is going through bankruptcy, needing to sell the house to pay off the debt? This is in North Carolina.

The seller wants to sell now before the trustee sells so she can get something out of it herself. The debt is less than what we'd be paying for it. I talked with the bankruptcy attorney and the debt owed is $75K. Right now WA is $140K but we're hoping to get it down after the inspection. ARV is $287K.

I know our offer has to be approved by the court, but does the trustee still try to get as much as possible out of the house, even though the WA is almost 2x what the debt is? And if so, does the seller get that money above and beyond the debt? Or does someone else? 

Is it typical for this to be approved since we're offering more than what the debt owed is? We have no idea what might be involved in getting the sale approved so we're looking for anyone with any experience with this.

Thanks so much.

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Quote from @Kelly Beck:

Does anyone have experience purchasing a property where the mortgage is paid off and the seller is going through bankruptcy, needing to sell the house to pay off the debt? This is in North Carolina.

The seller wants to sell now before the trustee sells so she can get something out of it herself. The debt is less than what we'd be paying for it. I talked with the bankruptcy attorney and the debt owed is $75K. Right now WA is $140K but we're hoping to get it down after the inspection. ARV is $287K.

I know our offer has to be approved by the court, but does the trustee still try to get as much as possible out of the house, even though the WA is almost 2x what the debt is? And if so, does the seller get that money above and beyond the debt? Or does someone else? 

Is it typical for this to be approved since we're offering more than what the debt owed is? We have no idea what might be involved in getting the sale approved so we're looking for anyone with any experience with this.

Thanks so much.

She could go to jail for fraud if she sells outside of court and trustee approval. Granted, that's the worst case scenario, but it got your attention didn't it. ;-)

Your Comment: "The seller wants to sell now before the trustee sells so she can get something out of it herself."

Once she filed bankruptcy everything she owns becomes part of the bankruptcy estate controlled by the bankruptcy court and managed by the bankruptcy trustee.

If the trustee and the court approve of the sale, she can sell. Generally the attorney for the filing debtor (or bankrupt as some call it) will list debts in categories prescribed by the bankruptcy code. Those debts higher on the priority list usually get paid some portion of what is due. Whether she can sell and keep any of the proceeds is dependent on too many factors to discuss here, but it includes how much other debt is owed, and to whom, if there are other creditors on the property itself, if taxes are owed, child support, property taxes and a myriad of other considerations.

If there is enough equity in the property, the trustee may chose to sell the property himself. And why not, he gets fat fees for selling properties to pay off debts.

She has to talk to her attorney, openly and honestly, if only to avoid criminal charges, but even still, the title company won't provide clear title on the transaction until the bankruptcy is closed or there is an approval by court order. I've had judge take two months to sign the approval so we could complete the transaction. And you don't just call up a judge and ask to hurry up.

Depending on the chapter filed, chapter 7 or chapter 13, the process can take months to work out and finally close. It isn't a swift process.