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Shortsale654, Home Buyer in Los Angeles County, CA

Short Sale and Chapter 7 Bankruptcy, what can the buyer in approved short sale do if the seller decided to file bankruptcy at escrow?

Asked by Shortsale654, Los Angeles County, CA Sun Sep 19, 2010

I am the buyer in a short sale that has been going on for the past 6 months. We went into escrow about 25 days ago hoping to close as of last week. Last week, our agent (it is a dual agency) informed us that the sellers are not going to complete the sale, they have not signed any escrow documents, and are talking with a bankruptcy attorney. Apparently, their plan from the beginning was to file bankruptcy, but their attorney advised them to complete the sale of their primary residence first and then file the bankruptcy petition. They hired a new attorney that is pushing them to file bankruptcy immediately and let the court trustee decide the future for this property. I have consulted with a real estate attorney who says that our situation is pretty hopeless and we cannot do much except write a letter to the sellers requesting them to perform on their signed contract. What are the consequences if they complete the sale before bankruptcy? How does filing a lis pendens effect the sale?

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17
If a bankruptcy is filed, sellers can file a motion to dismiss the home from the bankruptcy. Best advise is to speak to your agent and see if sellers will budge to sell the home. What a mess, wish you the best and Im sorry you have to go thru this.
Web Reference: http://www.saveahome.net
1 vote Thank Flag Link Tue Apr 3, 2012
1st, you should know what their negative equity is. Are they underwater on this house by $50K or by $400K? Them filing BK is not going to erase that negative equity, they're still going to have to move when the house goes to auction.

The only thing they're doing by filing BK at this point in your short sale transaction is maybe buying another month, Maybe 2, to live in the house for free before they're going to have to move out & go rent somewhere.

My suggestion would be to write an "agreement" with them & offer to buy their breakfast table for $2,000-3000. Have the listing agent pitch in. Tell them they can rent back from you for free for 1month while they look for a rental, move out & close on the short sale.

The short sale CAN still be closed even though they've filed BK.
I am not an attorney, these are my creative opinions on how to get the seller to still allow the short sale to close.

EmilyKnell1@yahoo.com
562-430-3053 cell
1 vote Thank Flag Link Mon Sep 20, 2010
Understanding Bankruptcy and Short Sales:

Hi, I'm sorry if my message doesn't reach you in time! It sounds like you could have really used some expert advise. Most of my short sales take place within the context of a Bankruptcy. It can be a very positive step to help the homeowner achieve a truly new beginning and help the buyer obtain the property through a successful short sale.

I 100% agree with the Seller's new Attorney that the BK should be filed 1st. Especially if there is a 2nd/3rd or liens involved. The liens will still have "hostage" value on the chain of title, but your short sale offer becomes their only means of repayment after a BK, since the personal obligation to repay the debt is vanquished. Talk about a great way to pull the teeth from a roaring Dragon!

Further, HOA arrearages, through the date of discharge are eliminated. What a great help, especially if you are really having to work to pull both sides together on the negotiation.

Show a humble and cooperative spirit and help everyone understand how you can help benefit them! Think Judo, not Boxing! Use the other person’s strength, softly!

Many Trustees will give pushback and not allow a short sale during the BK. In most cases, this is not a disaster at all. I am closing one like this on Friday. It went smooth as silk! As soon as the ROS was filed, we pre-marketed the home, obtained our buyer, built out our short sale file and the short sale was presented to the bank right after discharge, and the case was closed 3 days later by the Clerk. So, now the property is the Seller's to sell, and they are doing just that through a harmonious and successful short sale.

The Bank benefited greatly with the highest and best loss recovery through my expert marketing and knowledge of how to successfully navigate these waters, and the Buyer will be the proud and happy new owner of his dream home on Friday! From short-sale submittal to approval took me 7 days.

Debts discharged through a BK are exempt from Taxes under Federal Law. So, that's a huge win for the Owner, especially if the nature of the Debts was not Purchase money.

It's a great win for you, and you have a chance to help a family in need and obtain your dream home all at the same time.

If your Realtor/Broker and or the Seller's Realtor/Broker on the short sale do not have expertise in this area of practice, they should not be practicing in it.

I am a frequent keynote speaker on the subject of short sales, for Chase, Wells Fargo, AAREA, NAREB, CDPE. I am also published on the subject of short sales through ezinearticles.com. I actively sell BK (and regular) short sales throughout Southern California and have never lost a home to Foreclosure. It is not a simple process to explain, but I find it to be a very gratifying area of Real Estate Practice.

Sometimes the timelines between case closing on a BK and the Foreclosure can be a bit hairy - I've seen 3 days! This is the fundamental issue with this type of transaction. So, again, this area of practice should not be entered into by an Agent who does not possess the knowledge or relationships to make it happen. I am considered a though-leader in my field, and have given back to the Real Estate Community, as a key-note speaker training hundreds of Agents.

As to the comments regarding "coffee table monies" - it is agains't the Law to commit short sale fraud and pass monies to Short Sellers outside of escrow. So, please use caution when considering "advise" that could land you in serious trouble.

Most of my short Seller's receive lawful Relocation monies from their Short Sale Lenders, on the HUD. This is a great motivator. There is nothing in this world worth breaking the law over. Sellers also gain invaluable time to get back on their feet, find a job or take care of other family emergencies. It's a win, win, win, win win!

I hope this really helps!

And, remember! You are building a lifetime of memories - and those memories will be about your HOME! Why not make this a memory about helping someone and learning how to navigate the uncharted waters through the expert negotiations of a seasoned Short Sale Veteran!

Now more than ever, who you work with in Real Estate Matters! ™

1(714)342-1978Julie Boyd, CDPE, SFR,CIPS

Founder, REThink Short Sale Solutions
http://www.rethinkshortsalesolutions.com
http://www.CertifiedHomeOwnerAdvocates.com
http://www.CertifiedHomeSellingAdvisors.com

Julie@CertifiedHomeSellingAdvisors.com

http://helpingamillionhomeowners.com/2010/02/11/committed-to…

http://ezinearticles.com/?Revisiting-Short-Sales-For-Fresh-S…

http://www.yelp.com/biz/julie-larson-boyd-san-juan-capistrano

Cal BRE # 01051535

Feel free to call me for a FREE, 1 Hour, No Obligation Consultation & Let's see how we can help make a difference in your lives, beginning today! Julie Boyd 1 (714)342-1978
0 votes Thank Flag Link Thu Oct 2, 2014
You will need to consult with a local real estate attorney. That is a very unfortunate circumstance. Sorry to hear you have to go through all of that after waiting on the short sale for so long.
0 votes Thank Flag Link Wed Mar 19, 2014
I had a buyer that wanted to buy a home in Arizona, but he had a Chapter 7 bankruptcy 7 months ago. After researching the web I found a loan program at http://www.cfsflex.com, they allow a mortgage after a foreclosure, short sale, or bankruptcy. There is only a six month waiting period. Good to see lending options coming back.
0 votes Thank Flag Link Sat Jun 29, 2013
what if i do a chapter 7 and how much time will that give me
0 votes Thank Flag Link Tue Mar 20, 2012
OK, this book seriously has EVERYTHING you need to know about a Short-Sale....Tips & tricks your lender probably doesn't want you to know and the cool thing that it's FREE.....100% FREE!!!!!

Get your copy of this book here:

http://www.help-me-short-sale-my-house.com


Good luck!
0 votes Thank Flag Link Fri Nov 5, 2010
Dear Shortsale654,
Ask your agent to prepare a mutual release so that any earnest money deposist you've made are returned before they are possibly added to the BK sellers assets Move on and if you decide to write an offer on another short sale property try to locate one that has already been pre-approved, which are becoming more common.


Frank J. Helderle
St. Louis, MO Realtor
CDPE, SFR, FSSSC
Web Reference: http://www.stlshortsale.com
0 votes Thank Flag Link Fri Oct 1, 2010
This is another reason i prefer to direct my buyers toward already foreclosed homes, Foreclosures are a bargain and easier to know where you stand. From what I have seen, short sales are trying to game the system and the bank is blamed unfairly. The seller attorney often is doing the gaming for the seller and you as a buyer are hoping for a promise based upon a lie. The seller attorney often is pushing for a zero deficiency judgment for the seller on the shortage. Talk to a local agent, formally withdraw your offer if you can and find a bank owned already foreclosed REO. Make sure a lawyer blesses your actions and best of luck!
0 votes Thank Flag Link Thu Sep 30, 2010
Hi Shortsale654, I know you want to purchase this home, but if the sellers aren't going to change their minds, it just seems better to move on to a different property. Yes, of course, HORRIBLE for you, but now it's not only out of your control, but it's not worth all the energy you would expend trying to fight this thing. Ask your agent if the sellers can help reimburse some of your costs, since it was their decision to declare bankruptcy prior to close of escrow. Good luck.

Best,
Caroline Choi
Broker Associate/Realtor
0 votes Thank Flag Link Tue Sep 28, 2010
One more thing -

ANY "side deal" with the seller is not allowed and you will likely be required to sign an "Affidavit of Arm's Length Transaction" which states the seller will receive no money outside of escrow for "anything" and the Seller may NOT remain in the property after the close of escrow for any reason.

In my opinion, allowing a former owner who has filed BK top remain in a property after close of escrow is a DISASTER just waiting to happen.

All of my comments should not be interpretted as legal advice, I am not an attorney. You should continue to seek legal advice from appropriate professionals.

Again, Best of Luck !

Thom Colby
Broker
0 votes Thank Flag Link Thu Sep 23, 2010
Short -

There are almost 100 answers to your other question here on Trulia and many of those respondents are anxiously awaiting your feedback: http://www.trulia.com/voices/Home_Buying/Short_Sale_Agents_C…

Now, to answer your new question.....

At the end of the day, this sale is very likely not going to close. The sellers have no money and unless they close the current escrow prior to filing BK, it cannot close without the BK Trustee releasing the property from the BK and the lienholder has to petitiion the court to have it removed - both of these activities are going to take MONTHS to get resolved.

Unless this property is so "spectacular" that you are willing to wait for months, you need to cut your losses and move on. Others have said to get the costs you've already incurred from the seller - NOPE - they have no money and are filing BK.

Get the sellers to sign a cancellation and get your deposit back from escrow before it becomes part of the seller's assets in the BK!

I have the exact same situation right now on a transaction and we've been waiting more than 9 months, the sellers filed BK just prior to closing and now the BK Trustee is going to sell the property at Auction because (he belives) it will bring more money than what was agreed in the contract. My buyer is walking away - upset - but walking away.

Best of luck,

Thom Colby
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. There is NO benefit to the Seller or Buyer and only benefits the Agent. Also, NEVER use your RE Agent / Broker as your Lender or vice versa. Also, be careful when using Real Estate Broker-owned Escrow and Title Companies - they can be loads of trouble.
888-391-5245 Direct Cell
THOM@THOMCOLBY.COM
DRE# 01398570
Web Reference: http://www.thomcolby.com
0 votes Thank Flag Link Thu Sep 23, 2010
Your Realtor should really have a word with his/hers other clients (the sellers) and meet with their bankruptcy Attorney and talk to see if filing for bankruptcy is really that urgent to where it cant wait the additional week you need to close on this property. It doesn't make sense if the sellers 'WANT' to sell and already have an approved short-sale demand, why would they file for BK now? Then again we dont have all the facts, more the reason why the realtor should meet w/ the sellers and have them ask their lawyer if it can wait a week.
0 votes Thank Flag Link Mon Sep 20, 2010
Dear Shortsale654:)

I can not give u any solutions due to the fact that you are being represented by an agent and also in a transaction. And we as Realtors are not to give solutions to clients that are being represent by a Realtor. This is in the Realtor's Code of Ethic.
0 votes Thank Flag Link Sun Sep 19, 2010
As a Realtor, I'm sorry to hear that you are going through this process. You've obviously come along way waiting for that short sale approval. I'm not exactly sure how a Lis Pendens would work in your favor. On the other hand, if the seller wants to file chapter 7 bankruptcy, they can do that. There is still a way to get the trustee or judge to allow the short sale to conclude before the sellers bankruptcy is discharged. This will not only be in your favor, but in the sellers favor as well. It will help minimize their losses. The Sellers need to understand the ramifications of having a bankruptcy on their credit along with a foreclosure. You see, a chapter 7 will only help eliminate the consumer debt and postpone a foreclosure. It often times does not relieve them of the mortgage debt. Therefore, they can file bankruptcy, but that mortgage does not go away. Its a great time to take advantage of the Debt Foregiveness Act and proceed with the short sale now. Remember, if they have no intention of retaining the property because they can't afford it, it will ultimately end up in foreclosure. *My final and best advise to all parties is to seek the advise of a real estate attorney and CPA to verify this information to be true and accurate. As I am not an attorney and can't give legal advise.* In regards to the sale, talk to your real estate agent immediately and submit a seller notice to perform. Option two, of course is to continue searching for homes. Which in this market is not an easy position to be in. Looking for the right home, writing multiple offers, trying to beat out your competition and waiting another 3, 6, 8 months in escrow which is increasingly becoming the norm. This is why it is vital for Realtors to understand the viability of these short sales before they even take the short sale listing. As an agent, the last thing you want to learn is that your homeowner was merely trying to strategically default on the property, file bankruptcy and walk away with little or no real intention of selling it. Unfortunately, this is the type of market that we're in. Best wishes & good luck!
0 votes Thank Flag Link Sun Sep 19, 2010
Why bother. Ask the Seller's to reimburse your costs (inspection, appraisal etc.) and move on to find another home you love. What is attempting to file a Lis Pendens going to do for you? If the idea is to purchase a home, move on. In 6 months rates have dropped as have prices, so look at it as fortunate you now can afford more home.

There is a good reason to NOT do dual agency, but to always have your own representation.
0 votes Thank Flag Link Sun Sep 19, 2010
Lis Pendens is a legal term, I am not an attorney, and you have done the right thing by consulting one, however, my understanding of the term is that it notifies the public of pending litigation. In a foreclosure situation it is usuallyt he first document filed, even before the complaint for foreclosure, notifying the public that the property is the subject of pending litigation, the foreclosure action. I am not familiar with any consequences for completing the sale prior to filing for bankruptcy, especially Chapter 7. And, if they have no assets and cannot afford the mortgage then I would expect the trustee would order the home sold as a short sale. It's hard to tell, but one thing is certain, the homeowners will buy themselves a little time by filing for bankruptcy. It could be that there are other debts, credit cards and so on, that have made it urgent for the homeowners to file bankruptcy now rather than wait. I would let the attorneys talk, it may be this action won't affect the sale at all.

Listen to your attorney and good luck.
0 votes Thank Flag Link Sun Sep 19, 2010
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