Just a word of warning for anyone who has a SS seller paying on a chapter 13 BK.

I have been working for 2 months alone on getting the second lien holder (CitiFinancial)  to accept a $3,000 payoff as allocated strictly by Freddie Mac. Freddie Mac would not move off their guidelines and despite constant calling in the hope of reaching someone there with a brain, was always directed back to the servicer who happens to be GMAC.  There was nothing I could do other than start working with Citi to get them to let go of their side of the bone and accept a $3,000 payoff on a $61,000 balance.  In the end my powers of persuasion proved worth the sweat and they agreed, giving me a reason to celebrate on getting both shorts approved and ready to close...my celebrations were short lived.

I found out 2 days later that there were complications because the title binder pointed to a chapter 13, which I knew of at listing time, but did not realize it could derail any progress I would make later down the line.  The buyer attorney raised red flags and pretty much prevented the deal from closing because now, we have to go through the bankruptcy court to get final approval to sell the house.  

It looks like I am going to have to go back to GMAC and ask for an extension...Its looking doubtful but I am still hopeful things will work out,  The buyer has grown tired of waiting due to numerous stops, starts and turns and I can't really blame him.  

Darren De Wilde

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This is why you should never take a listing that is in BK unless you have a court order giving permission to sell the property, and even then I do not accept them. They sellers have no financial benefit to following through, so they can and will walk away at any time.
I thought bankruptcies cover unsecured debts? I would think the house would have to be sold before the bankruptcy could be discharged? What about HOA fees? I have a friend that filed for a BK about 3 years ago and the house is still sitting empty with HOA fees mounting up . . . all in her name still. Her attorney says not to worry about it.
Then we have another attorney in town that sends us all his bk clients to do a short sale while they are in the bankruptcy.

Which attorney is correct?
you do the short sale BEFORE you do the short sale. That way you have something in writing as to deficiency that you can hand the court.
you do the short sale BEFORE you do the BK. That way you have something in writing as to deficiency that you can hand the court.
I advise the same thing to all my clients that ask about the timing of a BK vs Short Sale.
Short Sale first then the BK is the correct order. As you pointed out this is not only to cover any deficiency but also if the lender required a note it can be included in the BK.
Hi Everyone,
Thanks for all your replies, its really helpful to know. As far as I am aware the HOA fees are up to date. The sellers are and have been paying on the chapter 13 and neither mortgage was included in the petition. In fact, the second lien appealed against and had the back payments released from the petition. I cannot see any other issues than the time frame and needing to get banks to extend closing date. Nothing will be added into the note.
Thanks again for the replies and input..:-)..will let you know how it all goes.
Darren De Wilde
It might be worth knowing that the chapter 13 was already in place 2 years before I took the SS. :-)
I've had good luck with Bankruptcies before short sales, but I also work hand in hand with the BK attorney if there is one. Not every attorney is pro short sale either. I found that out the hard way, but luckily the last two had a real estate background and saw the benefit of the short sale so they pushed for it.

It DOES hold things up, but I have a feeling the lenders will want to work with you. Good luck.
Check with your Title and Settlement People in your State as well, before doing the short sale if there is an existing or intended BK, as there are State- specific regulations concerning conveyance of a property owned by folks in BK.

In general, unless a contemplated transaction is a large one, offering a SIGNIFICANT commission, doing the additional work required to short sell a property owned by sellers in Ch. 13 IS NOT WORTH THE EFFORT IMHO!




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