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Bankruptcy Trustee's Role in the Sale of a House

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  • 04-18-2014, 04:03 AM
    teacher94565
    Bankruptcy Trustee's Role in the Sale of a House
    My question involves bankruptcy in the state of: Tennessee

    I filed Ch. 7 bankruptcy this year and had no interest in reaffirming my house. When I filed bankruptcy I was current with the payments. I think that I probably owe more on the first and second mortgages than what the house is worth based upon what other houses have sold for in my neighborhood. The house has issues including needing foundation work, plumbing, electrical, and a roof. I am now 3 months behind in payments plus fees and definitely do not want to reaffirm or make up payments. Even if I wanted the house I cannot afford the payments.

    The mortgage co. applied for a relief from stay. The bankruptcy trustee had a real estate agent view the house and answered the complaint saying that the house has value. I assume that means the trustee thinks he can sell the house, at a minimum, in the amount of my first and second mortgage payoff, $50,000 to me for my homestead exemption, plus enough to get the trustee paid. That all seems optimistic and I don't think that it is possible, but I'll take $50k if they want to sell the house.

    My questions are how long does the trustee have to sell the house? Am I forced out of the house before or after the sale? Will I be forced out so the house can be shown to prospective buyers? Will the house be sold at an auction while I live there? How long after an auction or sale will I have to get out? Should I negotiate with the trustee and accept less than the $50k homestead exemption? I would rather have $20-30k than nothing, but don't want to leave money on the table.
  • 04-18-2014, 06:23 AM
    flyingron
    Re: Bankruptcy Trustee Sale of House
    You aren't forced out until it sells and the new owner wants you out (usually at closing, but if it's an investor he may be willing to make other arrangements for you). It's not the trustee you have to deal with. Of course, you want to clean up the place and keep it in a marketable condition through the process both for your own benefit and that of the bankruptcy estate (keep the trustee happy). There's no need to negotiate with the trustee (and frankly it's probably improper for him to do so). He's really only has too options, allow the bank to foreclose or put it on the market.
  • 04-18-2014, 06:51 AM
    teacher94565
    Re: Bankruptcy Trustee Sale of House
    Quote:

    Quoting flyingron
    View Post
    He's really only has too options, allow the bank to foreclose or put it on the market.

    Does the trustee market the property through a real estate agent and list on mls and people come view the house? Or does the trustee sell it at auction sight unseen?

    My plan was to save money by not cutting the grass or trimming the hedges, but I might if it benefits me. The inside of the house needs minor repairs and paint, but I will not repair those because that would cost thousands which I do not have.
  • 04-18-2014, 06:59 AM
    flyingron
    Re: Bankruptcy Trustee Sale of House
    There's no point in auctioning it off themselves. If they were going that, they'd just lift the stay and let the bank do it. If the house was indeed worth more than what the bank has in it, the excess would be distributed to the bankruptcy estate to pay the non-secured creditors. However, that's usually not an effective way to dispose of real estate. If they are going to sell it within the estate, they will do so with a real estate agent (they'll need to get the court to approve that). It's a bit more involved in a normal sale as the other court must approve the sale after the buyer is found (though this is typically not as bad as some bank short sales can be) and the other creditors must be notified to see if they have an objection (unlikely).

    Again, while I'd not make any capital improvements but I would keep the grass mowed and the place clean. Once the real estate agent is on board, they can suggest if there are other things you might do that would benefit you in the long run.
  • 04-18-2014, 10:33 AM
    teacher94565
    Re: Bankruptcy Trustee Sale of House
    The bank has no interest in repaying creditors or paying the trustee. Also if the trustee were to lift the stay they lose control of the real estate. At that point they could not demand the property be sold within a certain time frame or demand a certain amount of money for the property. I would guess that is why the trustee has opposed lifting the stay and why the bank motioned to the judge to grant their motion to lift the stay.

    I imagine the court will side with the trustee since the realtor and county appraiser are telling him the property has value above the mortgage and the $50k homestead exemption.

    Does that mean the trustee lists the property and I have to show the inside of the property and let people into the house? How much notice should I demand before the house is shown to buyers? Or, am I removed from the house and then the house is shown to prospective buyers? How long a time frame does the trustee have to dispose of the property?

    I do not want to be liable for disclosure statements because there is a lot that is wrong with the property. In this situation do I sign documents relating to the sale or is it all on the trustee?
  • 04-18-2014, 11:02 AM
    flyingron
    Re: Bankruptcy Trustee Sale of House
    Typically the trustee gets court approval to have a real estate agent list the property and find a buyer. Then when they find a suitable one, they will go back to the court to approve the sale. Yes, just as if you were selling the house yourself, it will have to allow the realtor to show the house to people. While you don't technically have to leave the house while it is being shown, it works better if you are not there. The trustee has until the bankruptcy is closed to figure out how to dispose of the property. Of course you or the bank can continue to try to enforce claims on the property in the interim.

    Understand that the TRUSTEE doesn't represent you, he represents your creditors and his job is to get the best deal for them. That's why he's considering not allowing the bank to just foreclose on it.

    One issue in your original post, your exemption is only $5,000, not $50,000. Any money in excess of that from the sale is going to settle your debts.
  • 04-18-2014, 01:06 PM
    teacher94565
    Re: Bankruptcy Trustee Sale of House
    Tenn. Code Ann. § 26-2-301 (2013)

    26-2-301. Basic exemption.

    (a) An individual, whether a head of family or not, shall be entitled to a homestead exemption upon real property which is owned by the individual and used by the individual or the individual's spouse or dependent, as a principal place of residence. The aggregate value of such homestead exemption shall not exceed five thousand dollars ($5,000); provided, individuals who jointly own and use real property as their principal place of residence shall be entitled to homestead exemptions, the aggregate value of which exemptions combined shall not exceed seven thousand five hundred dollars ($7,500), which shall be divided equally among them in the event the homestead exemptions are claimed in the same proceeding; provided, if only one (1) of the joint owners of real property used as their principal place of residence is involved in the proceeding wherein homestead exemption is claimed, then the individual's homestead exemption shall be five thousand dollars ($5,000). The homestead exemption shall not be subject to execution, attachment, or sale under legal proceedings during the life of the individual. Upon the death of an individual who is head of a family, any such exemption shall inure to the benefit of the surviving spouse and their minor children for as long as the spouse or the minor children use such property as a principal place of residence.
    ***
    (f) Notwithstanding subsection (a) to the contrary, an individual who has one (1) or more minor children in the individual's custody shall be entitled to a homestead exemption not exceeding twenty-five thousand dollars ($25,000) on real property that is owned by the individual and used by the individual as a principal place of residence.

    I am married with children and the property is a primary residence. So, if I understand the law correctly I get $50K after the mortgage is satisfied.

    Why would I work with the bank over the trustee? The trustee wants to get money to pay the bank, me, pay their law firm and pay creditors. The bank wants their money as fast as they can get it. As far as I can see the trustee is going to try and get more out of the property than the bank.

    For example: My house is valued at $200k. I owe $150k on my mortgage. If I make a deal with the trustee to lower my homestead exemption to $30k from $50k it would mean the trustee could sell the house and make some cash to get paid and cover some debts. Let's say the trustee is able to sell the house for $200k. $150k goes to the mortgage co, $30k goes to me, $10k to the real estate agent, $10k to the trustee. Everyone is happy with that deal. I get some money, the trustee gets paid, the real estate agent makes something. The only one unhappy may be the mortgage co. because they missed out on flipping the property for a $50K profit over what was owed.

    - - - Updated - - -

    Quote:

    Quoting flyingron
    View Post
    Understand that the TRUSTEE doesn't represent you, he represents your creditors and his job is to get the best deal for them.

    While the trustee tries to recover money for the creditors, he can't openly violate the law and exempt money collected from the sale of a house would have to be returned. I think of the trustee as a party who is looking out for their own welfare. The only reason they want to recover assets is because they get paid. In this instance, if he can get paid by selling my house then he will try to do it.
  • 04-18-2014, 02:56 PM
    flyingron
    Re: Bankruptcy Trustee Sale of House
    I didn't say you did want the bank over the trustee. If you won't be able to make the payments after you clear bankruptcy, and there is equity in the house, sell it. Foreclosure won't net top dollar for the house. Get a realtor approved with the trustee and work with them to maximize your situation.
  • 04-18-2014, 03:19 PM
    jk
    Re: Bankruptcy Trustee Sale of House
    I don't think you understand the homestead exemption.

    and where do you get that you would get $50k, in any situation? The largest exemption is $25k but...


    The exemptions are for the value of real estate you own. Once you sell a property, there is no homestead to protect ergo; no applicable homestead exemption. Any money realized from the sale of the property will be taken to pay debts.
  • 04-18-2014, 09:15 PM
    despritfreya
    Re: Bankruptcy Trustee Sale of House
    Quote:

    Quoting jk
    View Post
    and where do you get that you would get $50k, in any situation? The largest exemption is $25k.

    The Tennessee Supreme Court, ruled in In re Hogue, 286 S.W.3d 890 (Tenn. 2009) that a married couple residing with minor children were each entitled to a $25,000 exemption for a total exemption of $50,000 for the couple. Therefore, in a joint case, each spouse meeting the relevant criteria may claim this exemption amount, meaning that an aggregate exemption of up to $50,000 may be available. I assume OP filed jointly with his/her spouse.


    Quote:

    Quoting jk
    View Post
    The exemptions are for the value of real estate you own. Once you sell a property, there is no homestead to protect ergo; no applicable homestead exemption. Any money realized from the sale of the property will be taken to pay debts.

    Not sure where the above comes from. The whole reason for an exemption is to allow a creditor to sell an asset so long as the sales price exceeds the exemption amount. A debtor gets the exemption amount and the creditor gets the rest.

    In re Hackler, 35 B.R. 326, 328 (Bankr. E.D.Tenn.1983): Under Tennessee law, "[i]f there is an involuntary sale of the homestead, that is, a sale forced upon the owner by judicial action or legal process, the surplus proceeds of the sale remain impressed with the homestead right."

    The Trustee may market the property in an effort to sell it. If he can find a buyer willing to pay an amount that will end up giving the debtor the allowed exemption, anything above that amount will be used to pay creditors.

    Des.
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