Help: Purchasing house in bankruptcy - Posted by Rob in IN

Posted by Utah Investor on February 22, 2002 at 06:16:31:

Matt’s response is perfect. My hat’s off to him. He explained it perfectly.


Do it that way if you still want to chase this deal (we think LTV is too tight), but we wish you the best.

I’m excited to see someone else who has bought properties in Bankruptcy too. When I do one, it’s great, because of no competition, trustee is usually workable and some great money can be made.

Good luck Rob, and great post Matt!

Help: Purchasing house in bankruptcy - Posted by Rob in IN

Posted by Rob in IN on February 21, 2002 at 21:25:16:

I am looking to purchase a property which the seller has gone bankrupt (not sure which chapter). The 1st mortgage was about 122K, FMV is about 150K or so. The 1st mortgage was sold in the secondary market and the company holding this note would not divulge any information until the property was sold at auction supposedly "because of how they filed bankruptcy."
All of you legal and REI gurus, do you know why this company will not share any info? How can I go about finding the bank that holds the note to try and purchase the property before auction? Will the jr. notes remain on the property until the auction or have they already been cleared by the fact they have filed for bankruptcy.

Thanks for any assistance.

Re: Help: Purchasing house in bankruptcy - Posted by Rob in IN

Posted by Rob in IN on February 22, 2002 at 11:34:48:

Thanks Matt & Utah,

That information really helps. Also, here is some additional information regarding the debt on the property, after contacting the courthouse. There are 3 notes recorded on the property: 1st 122K, 2nd 11K, 3rd 10K. My house is actually 3 houses down and similiar. The property value has been increasing about 9% per year in this development and I would estimate the property value increased about 45% (5-6 years) around 160-170K. Obviously, this is not from an appraisal. My next question is: would it be better to have the property go through the foreclosure auction and hope the 1st mortgager holds on to it (eliminating the 2 junior leins), or should I contact the seller, who was my neighbor, as describe by Matt and negioate significant discounts from the 2nd and 3rd mortgage holders(who is the same company)?

Thanks again for the advice,

Re: Help: Purchasing house in bankruptcy - Posted by Bud Branstetter

Posted by Bud Branstetter on February 22, 2002 at 09:21:54:

If the property is going to be sold at auction they are probably in chapter 7. The owner still has title and you can proceed as suggested. But here is another avenue that can be used.
You can pull up on line a bankruptcy file and find who the creditors are and how much they claimed with this software. Junior notes will likely remain until the auction.

Re: Help: Purchasing house in bankruptcy - Posted by Utah Investor

Posted by Utah Investor on February 21, 2002 at 22:23:38:

I truly wish you the best, but let me ask you?

Why would you chase a house that was more than 75% LTV?

You should set a minimum to work (like 75%) for you to make your fair share.

But to answer your questions, you have to have the homeowner agree to selling you the property. Do you have that?

Next, you can make an offer to the Bankruptcy Trustee. He can order the sale to you (if it’s a chapter 7).

Best Regards,

Utah Investor

Re: Help: Purchasing house in bankruptcy - Posted by Matt

Posted by Matt on February 22, 2002 at 24:07:30:

Rob in IN -

I’m not a lawyer or accountant however I make deals with people in bankruptcy/foreclosure all the time. Your milage may vary and you may want to check the laws in your state regarding this info:

First thing I get when dealing with bankrupt/foreclosure sellers is “Authorization For Release of Information”. This signed document is faxed to both the atty (foreclosure) and lender regarding the seller’s loan. This allows anyone from my company to speak with them as if we were the borrower. It specifically allows any type of communication be it fax, email, voice et al.

Second, we receive a signed deed which our atty holds “in escrow” meaning the document will only be recorded in the event we reach a mutual agreement (to be drilled into at a later time).

I have a preliminary title search done by a close friend of mine which costs nothing.

I have our title company give us title committment (even it’s preliminary at this point) so that we know the title is clear. This can usually cost us from $0 to $50 depending on how much research is needed.

So far all of this will be for either bankruptcy or foreclosure. It tends to get a little more specific now.

In foreclosure situations, I then contact the lender or lawyer and get a payoff document which is usually good until the end of the following month. I also inquire as to whether the loan was conventional or other. Conventional notes may be bought by anyone and at this point I can make them a cash offer to “step into the lender’s shoes.” FHA loans can only be sold to FHA qualified lenders and the only way to get them is to offer a short pay which often isn’t very short of the full amount plus additional fees i.e., atty’s, interest, late fees etc. In these situations I negotiate directly with the lender and submit payments to the atty’s office for collection, record the deed and fix, sell and profit!

In bankruptcy cases it’s a little different:

Most of the above holds true such as title searches, committments, etc., but as Utah Investor states then it’s time to talk to the trustee to negotiate the payoff. I still get a deed which is held in escrow as I mentioned earlier which is recorded once I have the mortgage covered.

I hope this gives you a little bit of information and hopefully you’ll have some success with getting the right properties at the right price. I do agree with Utah Investor when he asked about you watching your maximum LTV though… keep in mind that you will have costs associated with either fixing up, holding and reselling the property or simply getting it leased out to someone else. Keep your eye on your bottom line and make sure you get paid. Just because it’s a bankruptcy or foreclosure doesn’t mean you need to be the next one it takes down with it!

Happy Investing!

Matt Yohnk
MPD Investments Inc.