Foreclosure in Fremont>Question Details

Fclose, Home Buyer in San Ramon, CA

Bankruptcy while short sale in progress

Asked by Fclose, San Ramon, CA Sun Sep 26, 2010

I am in a situation where the seller has filed for bankruptcy while the short sale was in progress. The bank had not pushed out the auction date and this may have motivated the seller (?) to file for bankruptcy. In any case, I want to understand what my options are as a buyer. I am not sure what kind of bankruptcy was filed by the seller in this case (chapter7 or chapter 13). Any advice and details on what comes next will be greatly appreciated.

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Fclose’s answer
My agent has been in touch with the bank and It looks like an assessor has been assigned to the case by the bank now. If any of you have been in this situation before can you please comment on how my agent should proceed at this point? Are there any tips/suggestions that you may have that can help us get the bank to consider my offer instead of listing it as an REO?
1 vote Thank Flag Link Tue Nov 16, 2010
Great suggestion by Dan Tabit. Have your agent contact the bank directly and see if they want to accept your offer and work with you rather than reinventing the wheels and find a new buyer for the property.

Good luck to you,

Charo Bhatt
1 vote Thank Flag Link Wed Oct 6, 2010
It looks like the auction date was set at the end of November. This auction date is now passed! I am totally in the dark now and my agent has been unable to get any proper responses from the bank. It cannot be such a black hole? Is there any way I can obtain more information and try to contact someone at the bank myself? Where do I need to look? This is a little disappointing.
0 votes Thank Flag Link Wed Dec 1, 2010
Hello Fclose,
Did you get this home ? I am facing the same situation now and would like to know the steps that you took on this.
I would greatly appreciate your reply..
Flag Thu May 31, 2012
Hello San Ramon Home Buyer,

It's good to know that the BK is discharged and home is not part of the BK anymore. Sellers Bank has also sent an order for the BPO do be done. Seems like things are moving in the directions that you want. Now be patience, give time, let the agents do their part and thing will fall in your favor and you get the home of your choice for the price you want!

Good luck to you.

Charo Bhatt
0 votes Thank Flag Link Tue Nov 16, 2010

I am sure every agent has a different style of working, and my agent is doing the best (I hope) :-)
0 votes Thank Flag Link Tue Nov 16, 2010
Myra, The BK has been discharged and the bank's petition to take the home out of the BK has been approved.
0 votes Thank Flag Link Tue Nov 16, 2010
You have no options. The bank can't take the seller's home while the bankruptcy is in progress. Find another home asap as this one is not going to be available for a long, long time.
0 votes Thank Flag Link Tue Nov 16, 2010
If I were your agent, I would build a case for your offer. I would send in a Comparable Market Analysis which supports the offer as within market value. I would highlight any deficiencies with the home that you are willing to overlook, which if placed on the market would require the lender to spend some money. I would emphasize your that you are ready, willing and able to buy with financing in place, no home to sell, no significant contingencies and will close at the earliest available date.
If your offer is within a reasonable percent of the middle of the market range, you stand a good chance that they would proceed with you rather than run up additional expenses.
I have to give you a word of caution though, what seems reasonable, logical and sensible to the average person may not be to the bank. Banks logic is not our logic and there is always a chance they will be unreasonable and even act in a way which seems against their own interest. I wish you the best, but want you to be prepared for anything.
0 votes Thank Flag Link Tue Nov 16, 2010
Thanks Charo! I am realizing people need to be careful bidding on short sales. Definitely DO NOT bid on short sales that are priced very low. Thats usually the first red flag.

I am also seeing sellers resort to mortgage fraud while selling their homes short.

Dan, I agree. The chances are not on my side anymore.
0 votes Thank Flag Link Fri Oct 8, 2010
Your agent should be your primary adviser here; they have more facts and know your market. Based on what you've said, if the bank takes the home in Deed in lieu of Foreclosure, they will own the home. Once they own it, they will decide how to proceed. Your agent can try and contact them to see if they will consider your offer prior to listing the home, but I'd say chances are not on your side.
0 votes Thank Flag Link Wed Oct 6, 2010
So the sellers have included the home in the BK. It appears the seller has handed over the deed-in-lieu-of foreclosure to the Bank. The Bank has filed a petition to get the home out of the BK.

From the collective experience we have on this board, what do people think the chances are that I may still be able to get the home?
0 votes Thank Flag Link Wed Oct 6, 2010
Regarding walking, it really depends on whether the home was included in the BK and how bad you want this house. You may be able to leave it, while you start to look at other homes to see if something you like better may come along. In the situation I referred to earlier, we did eventually get out of BK and complete the sale of the home, it can happen, but not quickly that is for certain.
0 votes Thank Flag Link Mon Sep 27, 2010
Yes,depends on the type of the BK you may need to walk away from that purchase. If the BK did not include the home, they normally keep the home for them selves, and have to abide by a certan payment schedule. You just said that both agents are not able to communicate with the BK attorney. I am so sorry that this is the situation, but dealing with a home in BK will be really tough if not impossible. Ask any real estate attorney.
0 votes Thank Flag Link Mon Sep 27, 2010

Although I am not an attorney most would file Chapter 7 if they qualify however if they make too much money or have other assets that cannot be protected with Chapter 7 they may chose Chapter 13 which allows them to have the amounts they owe (reduced sometimes) and they have to make payments on a schedule they and the courts decide is fair

Good luck
0 votes Thank Flag Link Mon Sep 27, 2010
Thanks for all the answers. We really like the home and have already been waiting for this since 2 months. I have a significant amount of money sitting in the escrow for this home. Also the BPO for this home came in right about our offer price. Both the buyers/sellers agents have been unable to communicate with the BK attorney so far, so we have no details on the type of BK we are dealing with.

What is the typical type of BK that sellers opt for in these cases?

One thing is clear from all the responses that I need to walk if the sellers have included the home in the BK. (?)
0 votes Thank Flag Link Mon Sep 27, 2010
In bankruptcy the court decides what happens to the house. Short sale is not valid any more even if the bank is still working on it. Banks some time do not communicate well between different departments, you may think that they are still working on it, they will stop son. Therefore, move on. You need to find another home.
0 votes Thank Flag Link Mon Sep 27, 2010
I represented a seller in a situation where she declared bankruptcy, and that took the home sale out of the short sale department totally. The court decides the disposition of all assets. In my case, the home went back to the bank and about 8 months later, it was sold as a bank-owned property - not a short sale. Unless you really think that this is the only house for you, I'd move on.
0 votes Thank Flag Link Mon Sep 27, 2010
Simply put, the negotiator for the seller will have to ask the bankruptcy court to approve teh short sale to allow the seller to sell it and avoid foreclosure, this will push teh banks hand to make a decision. if the price is at or near market value the short sale will have a better chance of getting it approved than if teh price is way under market value, then there is no benefit of a short sale and the court would probabily rule for foreclosure.

Check with your agent to see hat the bpo or appraisal came in so you can see where your offer sits.
0 votes Thank Flag Link Mon Sep 27, 2010
Hello San Ramon home Buyer,

Now a days with lots of changes even in Bankruptcy laws, a bankruptcy attorney can better advise what are the options sellers and buyers have.

Sellers may or may not have included the property that you are buying in the filling of bankruptcy. The automatic stay goes into effect upon filing the petition, creating a legal barrier to collection actions by creditors. If sellers have included the property in the debtors, seller’s bank may not be able to foreclosure on them until the bankruptcy is discharged.

Here are simple options I would take if I were in your position.

• Ask the seller’s agent if sellers have included this property in the filling.
• If the property is included in the filling, the waiting game is very long, unknown, depends upon how the
seller’s attorney is handling the case.
• I would see how much of a good faith deposit I have in escrow.
• I would get most of my funds released and keep only $2,000 or less in escrow and wait for the
discharge of the BK, if I really love that home and I am attached to it without even moving.
• While waiting I would keep my options open for another property in the similar neighborhood for similar
price range.
• When I find another replacement property, I would buy another property right away.
• If my financial situation allows, I would wait, keep and eye on the happening of this transaction and buy
this home as a second property/an investment

It is recommended that you seek an attorney's advice.

Good luck to you,

Charo Bhatt
0 votes Thank Flag Link Mon Sep 27, 2010
How badly do you want to buy the house? Do you want it enough to consult a real estate attorney?

How far along were you in the short sale process --- was short sale approval already granted and have you opened escrow?

If you're still waiting for short sale approval and you haven't opened escrow yet, then the seller filing for bankruptcy has just disrupted the whole process. It may be best for you to find something else than to be embroiled in the middle of a purchase on a house where the disposition is, at best, in question.

This happened to one of my co-workers whose buyer was in the middle of the short sale process when the sellers filed for bankruptcy. At first, the buyers thought it may be worth it to fight for the house --- but they were dissuaded by the time and expense involved where there were no guarantees.

if in doubt --- consult your attorney and weigh your options and your desire to own this property.
0 votes Thank Flag Link Mon Sep 27, 2010
Step one in these situations is to get out your contract and read what it says. You may have the right to withdraw your offer anytime prior the lenders approval.
You need to find out if the Seller included the mortgage in his BK. It may be that he filed for other debts and kept this out. I had a seller do the same thing a few years ago, but he included his mortgage in his BK. It stopped the negotiations and we had to resubmit. The buyer waited 18 months from start.
At this point you need to find out a lot more information before you make any decisions. Hopefully, the home was kept out of the Bk and you will get lender approval soon. If not, you might be better off finding another house.
0 votes Thank Flag Link Mon Sep 27, 2010
Since REALTORS are not lawyers and not able to give legal recommendations I would suggest you find a lawyer who specializes in Short Sales and knows bankruptcy law or would know a bankruptcy attorney to refer you to in order to get the legal answers you desire. IN the meantime you should be able to check county records to determine what Chapter of bankruputcy the sellers filed as it is public record. However if you need to be in a home in less than 3 months I would suggest you canel your purchase and go find a new home as the minimum time for the bankruptcy to be processed is about 90 days +/- so if you need to move sooner than that the deal you are in isn't the right one for you based on timing. Please contact a lawyer as soon as possible should you desire to continue moving forward with your transaction. Good Luck !
0 votes Thank Flag Link Sun Sep 26, 2010
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