Subject To : Seller filed a bankruptcy
Chicago, IL · Member since 2016 · 88 posts · 29 votes
Subject To : Seller filed a bankruptcy
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Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
7yOriginally posted by @Account Closed:
Hello,
I bought a property last year subject to existing financing.
Later I sold this property on owner financing to another buyer.
I was making regular payments to the existing loan since i sold the property.
Last month I was unable to make the payment to the lender and on further inquiry I found out that the original seller filed a bankruptcy under Chapter 7.
What should be the ideal thing to do now ?
Am i still liable for the existing loan ? How can i continue to pay the loan balance ?
Thanks
Abhijeet
You need a bankruptcy attorney to represent your interests in bankruptcy court. Depending on how title is currently vested, the case could go a number of ways. The person you sold the property to is also at risk. You could possibly be a "lawsuit waiting to happen" with the person you sold the property to. The bankruptcy attorney you hire should be one with real estate "creative financing" experience or you will be paying him for "on the job training" to learn how to defend your interests. Even after you get all of this straightened out, the possibility exists of the bank calling the loan due. There are several techniques to employ, but since I am not an attorney I am not allowed and would not in a public forum discuss those techniques. The right attorney with a real estate, lending and bankruptcy background can help you. But you must act quickly, there are timelines associated with bankruptcies.
13 Replies
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes7y
Originally posted by @Account Closed:
Hello,
I bought a property last year subject to existing financing.
Later I sold this property on owner financing to another buyer.
I was making regular payments to the existing loan since i sold the property.
Last month I was unable to make the payment to the lender and on further inquiry I found out that the original seller filed a bankruptcy under Chapter 7.
What should be the ideal thing to do now ?
Am i still liable for the existing loan ? How can i continue to pay the loan balance ?
Thanks
AbhijeetYou need a bankruptcy attorney to represent your interests in bankruptcy court. Depending on how title is currently vested, the case could go a number of ways. The person you sold the property to is also at risk. You could possibly be a "lawsuit waiting to happen" with the person you sold the property to. The bankruptcy attorney you hire should be one with real estate "creative financing" experience or you will be paying him for "on the job training" to learn how to defend your interests. Even after you get all of this straightened out, the possibility exists of the bank calling the loan due. There are several techniques to employ, but since I am not an attorney I am not allowed and would not in a public forum discuss those techniques. The right attorney with a real estate, lending and bankruptcy background can help you. But you must act quickly, there are timelines associated with bankruptcies.
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes7y
Yeah, that is a problem. Your continuing to make payments in his loan is over. Expect a foreclosure suit from the lender.....extremely doubtful the debtor is trying to reaffirm/keep this debt. If you didn’t transfer title when You sold with “owner financing” you probably need to go refi the property, could get dicey. If you Did transfer title when you sold, even bigger problem.
- 7yRobert GilstrapPro MemberResidential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
@Account Closed The bankruptcy should not affect you or the person you sold it to at all as long as payments are being made. The person who filed had a BK attorney who told him/her to list every debt they had and that includes the mortgage on the property he sold you sub-to. Doesn't matter as long as you keep making payments. He can either affirm the debt or not in his bankruptcy. Guessing his BK attorney said they are NOT affirming the debt meaning they are not going to make payments and they are seeking to have the BK court discharge that debt. The issue is however, if payments are still being made then the effect is the BK court discharges the debt from the debtors BK estate but the house can't get foreclosed on because payments are current.
If you are saying they are refusing to accept your payment at the bank then you are just dealing with someone who sees the flag on their system that says "bankruptcy" and they are unsure what to do. Make the payment in person if you can and if you have to contact the bankruptcy trustee for the case and tender payment to them (only do so through a BK attorney you hire to represent you). You should also contact the debtors BK attorney and explain that you are seeking to pay on the debt.
I agree that you need to act quickly and if you can't get someone to accept payment then you need to hire a BK attorney to assist you in forcing them to accept your payment (and they will take it). Had this exact situation several times on sub-to's I own. I pray you owned this in an entity/trust and you sold it that way as well because if the sky falls you don't want to be exposed to a potential suit from the guy you sold it to.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
If you wrapped this loan … and title is in your name or the other person you sold its to name.. Just pay this loan off.
you have your junior lien that then moves to senior position.. in sub too you want to always be in a position to pay off the underlying if the road gets rocky.. then you can collateralize your owner contract to pull some if not all of your cash back out of the deal ..
either way sounds like your going to be spending some money on attorneys and you will have some liability from who you sold it to if they get harmed or damaged..
the sub too wrap scheme has some hair on it.. not for those without some backing to take care of these issues if they arise.
- Chicago, IL · Member since 2016 · 88 posts · 29 votes7y
Thank you so much guys for your advice.
I am a little concerned as to what should be my next step.
The title is still on my name and I sold the property on Agreement for Deed to the tenant buyer. I will contact the bank as well as the attorney to discuss my situation.
Any other advice from anyone? - Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes7y
Originally posted by @Robert Gilstrap:
@Account Closed The bankruptcy should not affect you or the person you sold it to at all as long as payments are being made. The person who filed had a BK attorney who told him/her to list every debt they had and that includes the mortgage on the property he sold you sub-to. Doesn't matter as long as you keep making payments. He can either affirm the debt or not in his bankruptcy. Guessing his BK attorney said they are NOT affirming the debt meaning they are not going to make payments and they are seeking to have the BK court discharge that debt. The issue is however, if payments are still being made then the effect is the BK court discharges the debt from the debtors BK estate but the house can't get foreclosed on because payments are current.
If you are saying they are refusing to accept your payment at the bank then you are just dealing with someone who sees the flag on their system that says "bankruptcy" and they are unsure what to do. Make the payment in person if you can and if you have to contact the bankruptcy trustee for the case and tender payment to them (only do so through a BK attorney you hire to represent you). You should also contact the debtors BK attorney and explain that you are seeking to pay on the debt.
I agree that you need to act quickly and if you can't get someone to accept payment then you need to hire a BK attorney to assist you in forcing them to accept your payment (and they will take it). Had this exact situation several times on sub-to's I own. I pray you owned this in an entity/trust and you sold it that way as well because if the sky falls you don't want to be exposed to a potential suit from the guy you sold it to.
@Robert - Your Comment: "The bankruptcy should not affect you or the person you sold it to at all as long as payments are being made". Actually, the property becomes part of the bankruptcy estate and the bankruptcy trustee controls the estate. You can't even sell the property at this point. You'd need a court order.
@Abhijeet A couple of things could happen. The trustee could decide that the transaction was fraudulent (if there was a transfer of assets "that occurred during the two years before your filing on the official bankruptcy" 11 US Code 548(a)(1) ) and reverse the transaction. If there is enough value in selling the property to settle some debt in the estate the trustee could sell the property. That is a legal nightmare for you. And It is unlikely to happen but you must become aware of it. If the Subject To was done properly you should be okay, but you should have gotten notice of the filing since you recorded the transfer of ownership (right?). The trustee pulls a title report and notifies everyone of interest.
The bank could exercise the Due on Sale clause. Without clear title are you willing to give the bank a lot of money to stop a Due on Sale? What about your buyer?
More importantly, in my opinion, is the person you sold the property to. They have an interest in the bankruptcy (the property) and should be represented by an attorney. I would talk to an attorney and ask for guidance going forward on what to do.
If it was simply a property you took Subject To and held in your personal inventory, that is one thing and a much simpler decision. This involves an additional party (your buyer) and should be treated with professonalism.
- 7yRobert GilstrapPro MemberResidential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
@Account Closed You're misunderstanding how bankruptcy works or something here. The property does not become part of the bankruptcy estate because it had been sold. It is no longer an asset of the debtor because he no longer owns it. The thing that is subject to the bankruptcy estate is the security instrument that the bankrupting party has pledged because it is in fact a debt of the estate. So yes, the trustee controls the security instruments final outcome but the dirt itself was deeded away and the fraudulent conveyance thing is a stretch in the real world because presumably there was no fraud.
I agree in principal with what you're saying but it's not with a wave of a wand this mans deed can be rendered null and void because some guy filed BK. The bank also will not just accelerate the loan as long as payment is being made. They just won't. The key is for that payment to get made. We all agree he needs a good BK attorney to review the situation.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes7y
Originally posted by @Robert Gilstrap:
@Account Closed You're misunderstanding how bankruptcy works or something here. The property does not become part of the bankruptcy estate because it had been sold. It is no longer an asset of the debtor because he no longer owns it. The thing that is subject to the bankruptcy estate is the security instrument that the bankrupting party has pledged because it is in fact a debt of the estate. So yes, the trustee controls the security instruments final outcome but the dirt itself was deeded away and the fraudulent conveyance thing is a stretch in the real world because presumably there was no fraud.
I agree in principal with what you're saying but it's not with a wave of a wand this mans deed can be rendered null and void because some guy filed BK. The bank also will not just accelerate the loan as long as payment is being made. They just won't. The key is for that payment to get made. We all agree he needs a good BK attorney to review the situation.
For years I bought properties that were in bankruptcy. Enough said.
- Coppell, TX · Member since 2015 · 485 posts · 310 votes7y
interesting thread, let us know how it goes? I get the part that debt collectors must cease collections under bankruptcy, but does that mean they reject debtor payments if they initiate?
I'm with the continue making that payment camp. that is the typical course of action for homeowners in bankruptcy who want to keep their homes but can't pay their other debt. escalate at the bank till an educated person takes the payment. :)
- Chicago, IL · Member since 2016 · 88 posts · 29 votes7y
Sorry, that I said the lender rejected the payment.
When I opened the online portal I was not able to see statements or any other past transactions in the account.
Every page says something like 'Contact bankruptcy department' .
Therefore, I choose not to make the payment because I wasn't sure that it will go through.
Anyways, I spoke with the customer service and made the payments now so the account is current again.
I am planning to contact a bankruptcy attorney and get a professional advice on this situation.
I would like to thank all of you for your time and guidance. I truly appreciate it. - Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes7y
@Robert Gilstrap what you said made sense and has worked for us like that to in the past as well. The bank just keep taking the payments even though we had to mail them in.
@Jay Hinrichs could you give more insight on how to collateralize an owner Finance contract.
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