Posted by Ben (OH) on September 23, 2003 at 08:50:46:
If the BK is filed I would assume he would stop making payments on the loan. Loan would go in default. Trustee would probably order a sale of the asset. If no buyers step up to the plate, then a short pay could be arranged, if the lender agrees.
Is there really $30K NET equity here? Probably not. Let’s say the property is listed at $160K and the best offer is $125K, would the trustee agree to the sale? Would the bank agree to a short pay? Would all parties agree to sell it to the brother? Yes, it can happen like this, I have been involved in these. As long as there is full disclosure.
My brother wants me to buy his home before he files for bankrutcy. Thought about a short sale but should he stop making the payments before I try to negotiate with the lender? Details Below:
-Brother has screwed up credit and wants to file bankruptcy.
-He wants me to buy his house, he will make payments & buy it back from me in the future. He wants 30k from the deal to start a business.
-Current loan is $130k @ 14% interest
-House is worth about $160k
-Currently the house is rented out with a negative cash flow
-I have good credit but lenders want me to put more of my own money down into the deal. Want to try and get an interest rate 8% or below.
Re:Cart before the horse - Posted by TheShortSalePro
Posted by TheShortSalePro on September 22, 2003 at 10:42:18:
What is the mortgagee’s motivation to accept short? Seems the equity is an adequate cushion and will not impose a risk of loss. The NOO could exact an adverse impact upon a mortgagee approved short, too.
Posted by JT-IN on September 21, 2003 at 21:24:21:
Matt:
In order to pull this off as you propose, implementing a short sale and putting 30K in your brothers pocket, you woud need to LIE to both the Lender and the BK court. This is not advised, for obvious reasons. Also, you will subject yourself to the look-back rules of Bk court, which are designed to eleminate this very thing from happening. This could spell real trouble for you, if it occurs that way.
What you could do is to let the house go into the BK, and it would surely be released from the Bk, due to the fact that there is little (NO) equity, after deducting selling expenses, holding costs, etc. The Trustee will surely release if from any stay… Once that occurs, your brother could sell the house to whoever he chooses. You may want to propose at that time to the Lender, as short sale… or in reality, do so in someone else’s name, to eliminate any resistence from the Lender due to the relationship connection…
Then when the deal is accepted, you can give your brother as much money as you want to, totally dis-associated from the RE deal… It may just so happen that it is 30K that you spot him, but nothing to do with the deal…
This may be semantics here, but it may be the sequence of how you do things may make the difference of whether you jeopardise yourself or not… and all when there is NO sense in doing so.
Posted by Ben (Oh) on September 22, 2003 at 07:50:13:
Why would he have to lie to the bank and the bk court?
If the trustee is ok with bro buying the house then where is the problem. If the bank is ok with bro buying the house in a short pay there is no problem. Sure, generally a bank accepting a short pay does so in an arms length transaction, but not always. I have had banks accept a short to a family member–depends on the noteholder.
As for putting $30K in the deal I don’t see the problem their either. If the bank accepts a short for whatever amount the only issue then is the deficiency–will they release or not. If bro can turn around and re-fi and pull $30K out of equity and loan it out I see no problem. As long as there is full disclosure.
It really depends on the bank–if they agree to a short pay, and the BK trustee releases there shouldn’t be a problem.
Either way in situations like these we always have legal counsel handle the transaction–put the burden on the hired hand.
Posted by JT-IN on September 22, 2003 at 10:15:23:
Ben:
Maybe we did not read the origianl post quite the same way. This is what I got from the original post…
My brother wants me to buy his home before he files for bankrutcy
He wants 30k from the deal to start a business
Currently the house is rented out
The purcahse would take place prior to the Bk filing… This will invoke the look-back by the Trustee, due to a sale of an asset within the paat year, and since the proeprty is not owner-occupied this eliminates any Homestead exemption. The Bk Trustee will not be OK with the fact that there was a 30K spread on this deal… whether or not a short sale can orchestrated or not. If the Debtor got 30K from the deal, the Trustee will want that back to share with other Creditors… after the Trustee fee, of course.
On the other hand, I can’t imagine a Lender approving a short sale if they know that the owner is dragging 30K from the deal… Do you think they would be OK with this one…?
So my point was/is… that in order to do the deal as proposed, some details would need to left out, when talking to both the Lender and the Bk Trustee… or else there will be no deal… When you omit facts to conceal what actually happened, as would be the case with the Bk Trustee, that is where the problem would arrise…
The risks just simply aren’t worth doing it the way it the question was posed. what I suggested was to have the Brother file Bk first, then have the property released by the Trustee due to the asset being secured, and little other available equity for Creditors, and then pursue the short sale. Short sales are all aboot timing, in most cases, and immediately following a relief of stay is a great time to be making that proposal.
Posted by Ben (OH) on September 22, 2003 at 10:26:07:
I don’t know if the “look see” would have an effect. If the bank agrees to the deal fully aware that the brother is transferring ownership that might not be a problem–full disclosure. If the brother purchasing failed to disclose he was the buyer it might be a problem with the lender and the BK trustee. On the other hand if the house is sold maybe bro doesn’t need to file a BK.
When the bank agrees to a short pay without recourse it is a done deal. If the bank requires a signature on a document claiming it MUST be an arm’s length transaction (and it has happened to me)then they would be committing a fraud if they failed to disclose.
I don’t believe in concealing anything in real estate as it can take a chunk out of the behind. Full disclosure and do the right thing.
Posted by Tim- chi on September 22, 2003 at 11:51:06:
Ben,
I understand your point as it relates to the bank, however the point JT-IN is making relates to the bankruptcy court and how they view the sale. When your brother fills-out the paperwork necessary to file a bk. he will be asked whether he recently sold/transferred any assets. If so it may be construed as a fraudulent conveyance. The court may unwind (void)the deal, or certainly go after the 30k. If the money was used to start a business the Trustee can attach the business assets.
The fact that your deal involves family members will cause the Trustee to scrutize the transaction. This could be a real headache for all parties involved.
Posted by JT-IN on September 22, 2003 at 11:05:28:
Ben:
Based on the original comments: “Brother has screwed up credit and wants to file bankruptcy.”… I would assume that getting rid of the house alone, would not fix the matter of whether to file the BK, or not…
I simply can’t imagine the Lender agreeing to a short sale for several reasons…
The mtg is not delinquint at present… I have attempted a few of these it seems useless to discuss them taking less when there is no eminent risk of loss to the Lender.
The overall LTV is not excessive, and based on this alone, even if the loan was delinquint, they would probably not offer a ss. Keep in mind the poster was hoping to get them to take a 30K discount… He would be a better man than I if he can get this done, with the current situation…
Yes, full dislosure is the way to go here and in every case. If the Bk court knows of the 30K then they will recind that sale, no doubt… This is simply a case of not being able to have the cake and eat it too…
Bottom line is… this deal isn’t going to happen as it has been proposed. The Lender isn;t going to go for the SS, and if by some stoke of the dream-world they did, then the Bk Trustee would taking the 30K away… in a NY second… IMHO.