House In Bankruptcy Court
I saw a house today in my area which is currently listing at 89900. The owner went through bankruptcy and the house now has a court appointed trustee.
Now comps in the area are running in the 100K to 120K region but this house needs easily 40-50K in repairs and refurbishments.
My understanding is that the owner purchases homes pulls as much money out of them as possible and then files BK. The realtor I was talking to said hes actually down this 2 before (7 year increaments). So I believe there isnt really much equity in the property.
Now some of questions are how mush interest does the trustee have in the property. Does he have to sell for as what is owed to the lender? Becuase its in fairly bad shape would he propably sell for less?
Are they likely to go with a deal over a straight sale? I was thinking we could offer 30K for the house with the addtion, when we sell after repairs we would give 20% of the sale minus expenses to the trustee.
In my experience with Ch 13 trustees, they're rarely going to stand in the way of a sale of ANY asset, rarely have any opinion as to value, rarely stop a sale to any interested party...so go ahead and bid what you feel is fair & you'll probably end up with the house.
In fact, most 13's end up being converted to 7's because there are really no assets to be managed, and normally durned little income to be distributed...most petitioners are kidding themselves that their assets are worth managing and distributing, and normally, after 90 days, their 13 is collapesed into a 7.
Alright. Now a question about the deal. If the offer of 30K get accepted. Would this work?
1. I would put a contract on it for 30K.
2. Sell to my partner for 89K (current appraised value) . He would obtain financing for 80% ($71200) of that and I would take a note for 20% ($17800) to be paid back in say 5 years.
3. We would then have a double escrow closing.
4. Then use the difference between the 71200 and the purchase cost of 30000. Which is 41200 to do repairs.
Whould this type of transaction be viable?
Bottom line if the situation is as you suggest the Trustee is not going to be making the decision. How much mortage is there on this property? The mortgage lender is still a secured creditor and he is going to get the house back, the court is going to lift the stay on the foreclosure and this thing is going to auction.
If you want to buy it for $30k the move is to go to the bank , offer to buy their note for $20,000 and step into their shoes. You will deal with the trustee and the bankruptcy court and the foreclosure. The other $10K is for your legal bills.
What type of listing did you see this property advertised with a price of $89,900?
You don't indicate what chapter of bankruptcy the mortgagor sought. If the Bankruptcy Trustee has accepted the house into the bankruptcy estate, either the mortgagor will keep the house via a Chapter 13 repayment plan, or lose the house.
If the mortgagor has filed a Chapter 7, and there is equity, the bankruptcy trustee will liquidate the property and use proceeds to satisfy the creditors.
If there is little, or no equity, the bankruptcy trustee will abandon it's interest in the property allowing the foreclosing mortgagee to resume collection activities.
At this point, the bankruptcy trustee is the hub of the wheel. I would get permission from the Owner to speak with the bankruptcy trustee...and see where this is going.
[addsig]
Again, I am assuming that the $89,900 represents the mortgage value. If the BK guy makes a habit of this you can assume he's got the house as levered as he can get.
"Now some of questions are how mush interest does the trustee have in the property. Does he have to sell for as what is owed to the lender? Becuase its in fairly bad shape would he propably sell for less?"
No, the trustee cannot sell a secured asset for less than the debt. He can sell it for more than the debt if he can find a buyer. Up to the level of the indebtedness the house does not belong to the seller/bankrupt it belongs to the secured creditor. If you want a discount beyond the indebtedness the guy you need to talk to is the banker, not the trustee.
Above the level of the indebtedness (if there's anything left) the ownership passes to the BK trustee to be used for unsecured creditors. But thats not the case here.