Foreclosure And Bankruptcy
i have been marketing to preforclosures over the past several weeks. on occasion i come across persons who tell me they have filed for bankruptcy. can someone tell me how this affects my investing? what kinda things do i need to look out for? is it a big deal that bankruptcy is involved? what other questions i should ask them?
Bankruptcy is a very large topic for a single post, and I’d suggest you speak to an attorney, or read up further on how it unfolds. A brief overview:
– the two basic types are 7 and 13.
– 7 wipes out all personal and unsecured debt, but does not excuse the owner from making mortgage payments.
– 13 is set up to “rehabilitate”, to restructure the debt and develop a plan of repayment over a 3-5 year span. This is most likely what you will encounter with foreclosure.
– 7 can be converted to a 13, but not vice-versa.
Bankruptcy gives automatic stay from the date of filing – all creditor activities must stop, or face the levying of fines. 7 is generally simple, while the owner must qualify for 13 by showing the means to repay. The bank will appeal to the court to DISMISS (creditors resume), while the owner hopes to DISCARD (debts wiped out).
This all boils down to a long wait. Leave them your card, keep in touch, etc. If the court dismisses, the foreclosure process will continue, and they may wish to sell you the house after all. If the bankruptcy continues, a trustee will set up a sale to liquidate, often an auction or other bidding process.
If it goes to trustee liquidation, my personal opinion is that a real profit for the investor exists only in big ticket properties, and that most residential ones will lack the room to makes them worth pursuing.
Again, seek the advice of a professional for all the nuances. Don’t take this post as final word.
Hope it helps, just the same.
Quinn.
Big mistake!
"7 can be converted to a 13, but not vice-versa"
My apologies, folks. I have to make a correction, please. I posted it backwards, it should read:
7 CANNOT be converted to 13, while 13 can be converted to 7.
Always consult an attorney! Also, I omitted it previously as my posts tend to get too lengthy, but my own rules for RE Investing include:
behave professionally;
know the rules, & then consult with those who know better;
protect yourself;
– and (esp. in regard to homeowners in foreclosure, bankruptcy, or other hardship),
exhibit kindness.
I deal mostly with vacants, but this eventually will change. Unfortunately, I watch as these ideas, especially the last one, are cast aside or ignored on a daily basis. I won’t be elected choirboy of the year, but...
Many thanks to TheShortSalePro for emailing me privately to point out my mistake. Not only am I happy to be corrected, but it afforded me the opportunity to admonish myself publicly first, before others could take me to task.
Best Regards,
Quinn