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Seller filing bankrupcy - what should a buyer beware


We are first time home buyers in NC. We were looking at a re-sale home. It was in good condition and not listed as foreclosure or short sale etc. We have not yet made an offer.  

We accidentally found that the sellers are going through divorce and have filed for chapter 13. Seller agent says the property is not part of this. They have some court document they  are willing to share parts of it. Per them, once the sales agreement is fully executed, it has to be submitted by the seller's bank-rupcy attorney to the bankruptcy trustee to approve disposing the home by the seller. In short, seller agent it's no different than a regular sale and should not take longer.


Any thoughts on what to watch out for?
Thanks
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November 07 2013 - US
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Answers (8)

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Yes. I am done with inspections, appraisal etc and seller has addressed items we wanted fixed, my loan is close to approval as well etc.  My closing attorney in order to create the pre-HUD contacted the sellers mortage bank to get his "payoff". Apparently that is getting delayed.

My point was this delay is purely from seller side that's eating up my precious due diligence.  If they cannot get the sale approval from their bankruptcy judge before my DD ends, then they should accept my request to extend due diligence without fuss.
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December 06 2013
Having the bankruptcy court approve the sale is a major part of the due diligence, in my opinion. Asking to extend  the DD period, until this is accomplished, is fair. Asking to wait to handle any other due diligence matters until after this issue is cleared may be asking a little too much. There is little chance the court will not allow a fair market priced sale. Are you proceeding with inspections etc..or waiting?
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December 06 2013
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I had a further question. We are in contract and have about 2 weeks left in our due diligence period. 

The seller clarified that:
1. We (the buyers) have to get the sellers a "preliminary hud" via our our closing attorney. We should have that in 2 or 3 days.
2. Seller then submits this to their bankuptcy attorney and gets an approval from the bankrupcy judge.  (apparently takes 2 weeks or less)

Seller has already shared a court doc showing that this property is abandonment/excluded from his bankuptcy estate. But the reason they need to get "approval" is because sale of this asset changes his financial position substantially. (so anything major he sells or buys he has to seek approval)

My question is: If there is a delay from the seller side in getting this approval, should i ask that he extend my due diligence? It seems a fair ask to me...
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December 06 2013
Consult a real estate attorney, and have a title search done.  If a notice of Lis Pendens was filed in the divorce or by their mortgage lender for past due payments, it could be a problem.  
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November 24 2013
The Attorney that you have chosen to handle the loan closing should be able to easily advise you about this matter. It is going to come up on the title search. Chances are they're going to consult you about it even without you asking.

I don't think it is a big deal. It is definitely no worse than it being owned by a Bank.

I have been in Real Estate in the Carolinas for 30 years. If you contact me tomorrow, I'll find out for certain.

Do you love this house? Do you have a Lender? Have you chosen an Attorney? Call me through my profile. Click my pic.
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November 07 2013
Contact real estate attorney for advice right off.
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November 07 2013
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Thanks. When in the process should the buyer appoint such an bank-rupcy attorney? Is it after offer acceptance during due diligence period?

Is this attorney different from (& in addition to) thebattorney that's normally involved in the closing from the buyers side? And is the process of closing also substantially more complicated in this case?
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November 07 2013

Even if the sellers think the house is not involved in their bankruptcy, they may be wrong.  Unless you are willing to pay an attorney who specializes in bankruptcy for advice on the complications that could arise, I suggest you walk away from this property.

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November 07 2013
 
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