Sometimes You Get Lucky...(Bankruptcy issues) - Posted by Scott Bullen

Posted by Scott Bullen on April 04, 2000 at 12:54:38:

Typically I have not purchased title insurance in the past, but I was suspicious of honesty of the seller in this case, so I purchased from the title company a “memorandum of title” here, costing me $150.00. This is what revealed the bankruptcy. I am working on the prinicipal that if a I have all the information necessary to get a title policy, why should I buy the policy for an extra $500?

O & E s, although typically free to me as a licensed broker, fail to reveal issues of this nature, and the one I did receive didn’t help.

Land contracts and lease options have all the same title issues, so it is just as necessary with them as it is with a deed. Better to have the bad news up front. With a lease option I just did, I paid for an inspection, and it revealed the necessity of a new furnace, with the Landlord/Seller just paid for now.

Sometimes You Get Lucky…(Bankruptcy issues) - Posted by Scott Bullen

Posted by Scott Bullen on April 01, 2000 at 21:58:58:

Whew!!! Did I ever just avoid the big bomb!!!

I have never before checked on a seller’s credit, but in the future I will.

Turns out that the seller of a house that was deeded to me was in an active Ch.13 bankruptcy plan, and that his deed was therefore not entirely valid without the participation of the bankruptcy trustee.

By luck, I needed to prove my ownership of the property, so I asked the title company for a “memorandum of ownership” which cost $150.00, something stronger than an O + E. There I found out about his bankruptcy. A squatter (common law wife) needed to be evicted, and I didn’t want to go to a quiet title hearing from the eviction suit.

As best as I can determine, his warranty deed gave me possessory rights to the house, but not ownership rights. To get the ownership rights, I need to get another deed from him after his ch. 13 fails (70% of all ch. 13s fail). This is due to the fact that all of his assets were statutorially titled in an estate controlled by the bankruptcy trustee at the time that his ch. 13 was begun.

The local bankruptcy trustee refused to give me title to the property, since the seller’s ch.13 plan was in the middle of a meltdown, and title would “soon be revested in the seller”.

Bill Bronchick advised me, “just get the deed”, which I think is good advise. In the future, I sure wouldn’t want to sell a house, however, without knowing the current status of any possible ch. 13 bankruptcy. This is now another part of the checklist I use for buying a house; I am getting the SSN of all my sellers in the future!!

This whole bankruptcy arena really frightens me, and it seems to me that as investors we need to be much more aware of these issues than the discussions on this forum would appear to imply that we are.

Thanks in advance for any comments.

Re: Sometimes You Get Lucky…(Bankruptcy issues) - Posted by chris

Posted by chris on April 02, 2000 at 11:45:51:

Hi Scott-

Bankruptcy is a mystery to me as far as what the different chapters entail so I am looking to be educated.

You got me thinking. If a buyer purchased title insurance or had a title search wouldn’t that protect him from the above situation or any other baggage the seller brings into the deal unless the title company marks an exaption? What is an O+E?

Another question-If you did not get the deed because you used a land contract or lease option and used a performance mortgage would that solve these problems?

-Thanks for the help, Chris

Bankruptcy is the proverbial “monkey wrench” - Posted by Ben (NJ)

Posted by Ben (NJ) on April 02, 2000 at 07:37:41:

I just emerged intact from my own battle. I held a tax lien on a property owned by an estate which had declared “insolvency”, (same thing as BK) a judge “accidentally” allowed the property to be sold free and clear of all liens. We made a motion to rescind the entire sale, appeared before the judge again and he amended his original order to allow us to be paid from the proceeds of the sale. This “hitch” could have cost me $16,000. You were very smart to uncover this early on.