Bankruptcy / Land Trusts and Lease Options - Posted by Scott (UT)

Posted by JohnBoy on February 03, 2002 at 01:58:35:

If the seller files BK before placing anyone into the property then the seller is going to need permission from the BK court to allow them to L/O the property before you can just enter into a L/O agreement with someone.

If the seller defaults and the lender gets a lift of stay, then yes, they can foreclose!

Assuming the L/O with the T/B was approved by the BK court and later the lender ends up foreclosing because of default, then the T/B will need to come up with financing to pay the lender off before the foreclosure goes through. Otherwise they end up losing the property.

The back payments that were put on a separate payment plan in the BK will have to be paid in full to get clear title from the lender. The lender is a secured creditor and they are entitled to get paid every dime owed when the debtor elects to keep the asset.

You “might” get the lender to accept all the back payments to reinstate the loan and stop the foreclosure…but if the debtor defaults on their chapter 13 then in all likely hood they will convert to a chapter 7 and have all debts discharged by the BK court, including their mortgage owed on the property. Once that happens the lender has no one that is liable on their loan. So they would probably continue with the foreclosure to get the property back so they can liquidate it to clear this off their books. You could “try” to get the lender to leave the loan in place by agreeing to bring the loan current, but that isn’t something I would bank on! Depending on the T/B the lender may be willing to just finance them by giving them a new loan to pay off the old loan just so they can clear this up in a hurry and save themselves from taking a loss on the old loan. Of course, that will depend on the credit worthiness of the T/B at the time. Or you as the middle person in the deal can just refinance the property yourself to protect your T/Ber’s interest in the property. Since you would be in the middle then you run the risk of the T/Ber suing you for their losses involved with the property.

Bankruptcy / Land Trusts and Lease Options - Posted by Scott (UT)

Posted by Scott (UT) on February 02, 2002 at 23:56:24:

Owner is in default. Arrearages are $7000. Property is placed in Land Trust. Because no RB/TB is found soon enough to bring loan current the Owner files a Chapter 13. The arrears are included in the BK and Owner begins making payments to the BK Trustee. Because the arrears are no longer a factor and are in the BK we are able to find a suitable RB/TB because less money is required upfront.

RB makes all their payments on time and there are no problems. However the owner defaults on their BK 13 payment let’s say in 6 months and the mortgage company files a Motion For Lift Stay (relief). This allows them to start foreclosure proceedings from the point they left off before the owner filed. The property was placed in a Land Trust(at fair market value), prior to the filing.

HERE IT IS:

Can the lender foreclose on the property? And, want rights do the RB/TBs have?
Will the RB/TBs have to come up with the amount not paid back in the BK?

This is the senerio that most of our clients face. Pre-foreclosures that need to bring loans current. Most of them are at least 5 months or more behind before they contact us. The arrears are so large that most have to file a BK to stop the foreclosure. Some file a BK even if they do not want the home so they don’t have a foreclosure on their record. They still need to find a buyer or someone willing to make the regular payments. We are hoping to place the properties in a Land Trust and find RBs to take over payments etc.

Any and all feedback is welcome. Thank You.

Scott Moyes
Team Financial Solutions, LLC