If you have a RE business and it flops, that 18K might be helpful to save you from losing your house, bankruptcy, etc.Future loans.  

The issue that they have is that there credit is horrible and they filed for bankruptcy chapter 13 and it obviously reflects on their credit even though they did not go all the way through with it and ended up paying off some of their debits.

If you want to learn more about it here is a book to start with, it covers valuations better than most as it is required for bankruptcy, although it applies to sales as well.Bankruptcy And Insolvency Accounting by Grant W.

The LOI is simply an understanding between the parties, it can be structured to have teeth but that beyond the scope of this question.An option when executed properly invokes an equitable interest in the property and depending on how it's written can force a sale should the seller later have a change of heart, file bankruptcy, or die. 

Actually even with smok'in good credit (yes, proud of that having recovered from a health caused bankruptcy in 2003).

Declare bankruptcy?

Tree maybe, actually contacted us and tried to get us to pay off the 2nd mortgage, even after I told them it was discharged in the bankruptcy.

This idea can be found in cases where a bankruptcy is filed around the same time or shortly after foreclosure runs it course.

Failure to pay as agreed, divorce, death, incapacitation, bankruptcy and clouds on title.

I actually spoke with the previous owner who says the sellers deceased father filed bankruptcy 3 times and never paid it off plus interest hoa fees and back taxes.