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.