NPN Story: Las Vegas Bankruptcy Queen

In 2019, we bought a non performing note backed by a nice home in a Las Vegas suburb. We’ve had some borrowers know how to abuse the bankruptcy system (see and This borrower, however, turned out to be one of the worst examples I’ve ever come across of someone who knew how to work the system. She was an expert at filing multiple bankruptcies to avoid paying her obligations.

On Track to Foreclosure

During the due diligence period prior to buying this note, we could see that the borrower was 3 years behind on mortgage payments and had filed multiple bankruptcies. On her current filing, she surrendered the property that backed this loan. On top of that, the lender had received relief from the automatic stay.

Good, we were clear to foreclose. Our seller had already filed the notice of default so the foreclosure was underway. Our values and title came back clean so we bought the note.

Filed BK to Stop the Sale?

We had a trustee sale scheduled for early December, 2019. A few days before the sale, the borrower filed Chapter 13 bankruptcy. What?? I thought she had given up on the property? It’s common that once a borrower fails at their bankruptcy plan and the lender obtains relief, that the borrower no longer fights to hold on to the property.

Not so in this case. I had to find out what was going on.

Time to Dig Deeper

I checked PACER (a government database that allows the public to access filed documents) and sat down for a couple of hours to piece together the whole story.

Yes, the borrower had an open Bankruptcy, which is the one I was aware of and from which the prior lender obtained relief.

Chapter 13 to Chapter 7 Conversion

It started as a Chapter 13 but converted to a Chapter 7 bankruptcy until numerous creditors (or lenders) successfully objected to her plan.

How can she file a new Chapter 13 when she already had an open Chapter 7 case? After talking to my attorney, it turns out that you can file other bankruptcies even when you have one already open. Judges will consolidate plans to make them work, if the legal requirements are met.

The borrower had filed 8 bankruptcy cases going back to 2007. I looked at the last three and quickly and discovered a pattern.

Keep House as Long as Possible while Paying the Least Amount

Long story short, this borrower knew when to file bankruptcy and when and how she needed to make moves to hang on as long as possible while paying out the least amount of money. It was a juggling act but she was doing it successfully.

The borrower owned a total of three properties in the Las Vegas area: a beautiful 4000 sq ft home (which I bet was the one she actually lived in), and two smaller homes including the one that backed our loan (which were probably rentals)

Las Vegas Suburban Home backing our note

The motivated individual is quicker and more adept than large, bureaucratic banks that take months to respond and have a hard time making the right decisions.

Fight back, Fight Hard

The solution to the motivated borrower who runs circles around the big banks is to fight back and fight hard. I make sure I have a responsive attorney who knows what he or she is doing. We strategize and determine the best path moving forward.

We postponed the trustee sale for a month while we watched to see what the debtor filed and determined our best course of action.

The debtor/borrower and her counsel filed different motions intended to extend the timeline to hearings and having her bankruptcy cases consolidated. This would have worked well with a big bank and delayed things for at least 6 months.

In Rem Relief

Instead, we filed for relief and got an emergency hearing within a couple of weeks. Our attorney provided the evidence that this was clearly a “scheme to delay or defraud the creditor” and we immediately received our in rem relief.

The trustee sale went through in January, 2020, only a month after the original sale. There were no bidders so the property reverted to us as REO.

Uncooperative Occupants

Our real estate agent tried to establish contact with the occupants but had no luck. If bona fide tenants lived there, they most likely would have responded to us so that they could stay in the home or make plans to move after we offered cash for keys.

Since they were ducking our agent, the occupants were most likely related to the borrower in some way and were in on her strategy of staying in the property as long as possible while paying as little as possible.

Have to Evict

We filed for eviction. The former borrower attempted to fight the eviction and presented an active defense.

Fortunately, the judge saw through these attempts and found in our favor in mid-March, 2020, during a telephonic hearing.

Saved by the Lockdown

A few days later, the governor of the state of Nevada issued a moratorium on evictions. We wouldn’t be able to enforce our writ.

As frustrating as it was with dealing with an unscrupulous borrower, I supported the initial moratoria for public safety. At the beginning of the outbreak when we didn’t know much about the coronavirus, it made sense to me to stop evictions until it was safer to resume.

Our wait extended to April, then to May, then to June. During this time, the former borrower appealed the eviction order and tried involving the property in her bankruptcy case. She just didn’t give up!

Ready to go? How about Now?

Normally pre-COVID, the time between winning an eviction hearing and the lockout date is one to four weeks.

In July, we got a call one morning from the sheriff’s department asking when we could have our agent available for a lockout. When they suggested later that same morning, we scrambled to make sure our agent could get there and completed the quickest lockout ever.

I suppose the sheriff had a huge backlog and wanted to work through them as quickly as possible.

It appeared that the former borrower allowed a relative to live at the house. He cooperated and we let him take an additional week to get the rest of his belongings.

Hot Market

We did a quick cosmetic rehab on the place and listed it for sale. Every real estate market is different. This one fell into the category of pandemic related lack of supply causing a super hot real estate market. We received multiple offers right away and were able to sell the home at a great price.

Things I learned:

1. Dig deep to understand what’s going on with bankruptcy cases so you can determine the best strategy.
2. Don’t spend too much effort trying to make a deal with those that are clearly scamming the system.
3. You have to be adaptable and ready to act during these times (especially when the Sheriff wants to do a same day lockout!).

Final Numbers:

Purchase Price: $190,000

Total Cost Basis: $227,030

Sales Price: $299,500

Net Sales Price: $280,841

Net Profit: $53,810

Days Held: 396

Return on Investment (ROI): 23.7%

Annualized ROI: 21.8%

COVID Delay: 4 months (eviction moratorium)

Andy Mirza is the Chief Operating Officer for Coastline Capital Fund Management, LLC, a company that creates and manages funds that buy, sell, and liquidate residential non-performing notes (defaulted mortgages).