Defendants Filing Bankruptcy to Stall Sheriff Sale Confirmation

[Nicole R.]

Hello BP Members,

I recently bid on and "won" a property at an auction that occurred this past early March.  Prior to bidding, I did my due diligence and felt comfortable bidding (i.e. ensuring it was a 1st mortgage, taxes in good standing, etc.).  It turns out, however, that the homeowners haven't paid a mortgage payment since early 2015 and instead just pay an attorney to continue to stall/keep them in the house for as long as possible.  

This lack of payment for a substantial amount of time resulted in a personal deficiency judgement against the Defendants (almost $400K) and the house is only worth $200k. They first attempted to file a motion to vacate the sale by arguing that the sale price was unconscionable (i.e. the auction sales price was too low given the amount outstanding and the bank should not have sold it for so low). This bought them additional time in the house because the judge granted them a "long" date to respond.  In late June, the confirmation hearing (where the judge was going to rule) date finally came. As some of you may be aware, it is difficult to prove that a sale is unconscionable when its purchased by an independent third party (so they were almost out of luck) and would have to start planning to leave the home. 

In keeping with their stall/delay tactics, however, only one of the defendants (the husband) filed for Chapter 7 bankruptcy the day before the confirmation sale hearing.  This means that he is surrendering the home, but the personal deficiency judgment would be wiped out. Interestingly, he listed the other defendant (his wife) as one of his debtors.  Now, the bankruptcy filing automatically stays the state court confirmation hearing, so the judge continued our motion generally until the bankruptcy is sorted out in federal court.

Our next step is to file for a motion for relief from the stay and get back into state court to get the sale confirmed and then start the process to obtain possession/evict the occupants. My concern is that because the wife is listed as a debtor in the husband's bankruptcy, she may either (i) have a claim against the property or (ii) file for bankruptcy once we get back into state court for the foreclosure hearing which would set us back an additional 3-4 months. 

Keep in mind that, once we get the sale confirmed, if ever, we will have to go through the possession/eviction process not only with these two debtors but also with their adult children who are residing at the home (but were not on the foreclosure documents).

We have been accruing attorneys fees throughout this process, so I wanted to reach out to see if anyone had any recommendations or has been in a similar situation before. 

Many thanks!

[Nicole R.]

@Jay Hinrichs, @Alex Deacon, @Brett Goldsmith Just wanted to provide another update on this. We completed the eviction proceedings earlier this year (June 2018) and the eviction was scheduled with the Sheriff's office for August 2018. Oddly, the defendants willingly decided to hand over the keys in late July. So, we took possession July 17th and had everything cleaned out (I'm talking 6 full 20 foot truck loads of stuff), new carpeting installed, and freshly painted by August 31st. We accepted an offer above our list price (but still low for the area) the day after labor day, and we are scheduled to close on 10/29. If it closes (fingers crossed), we will still have about a 12% return. I push thoughts away regarding what our profit would have been had we not encountered these setbacks and am grateful for the learning experiences this property has provided!