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  1. #1

    Default How to Keep a House in the Family when Bankruptcy is Involved

    My question involves real estate located in the State of: RI

    A family member has a rental property with a lien but is considering chapter 7 bankruptcy. As it is not her primary residence she will not be able to keep the house. She asked if I would be interested in buying the property. Her lawyer said it would be possible if "some money changed hands" but did not elaborate. Would this be a conveyance?

    I have researched this but have only succeeded in confusing myself. lol Since I already have a home I would not be able to do an FHA, putting 20% down for a conventional mortgage wouldn't be prudent for me right now, and her loan is not assumable. I want to keep the house in the family (the tenant is my mother) but don't know if it's feasible. Any advice is appreciated. Thanks.

  2. #2
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    Default Re: How to Keep a House in the Family when Bankruptcy is Involved

    yes, it would be a conveyance.

    You also need to familiarize yourself with fraudulent conveyance as well as arms length transactions. Either would cause some problems for your family member and the bankruptcy, or at least, increased scrutiny of the transaction.

    You also must realize that the lender is not going to give up their lien unless they are paid an amount acceptable to them (usually the amount owed on the property)

    how about mom financing the purchase of the home?

  3. #3

    Default Re: How to Keep a House in the Family when Bankruptcy is Involved

    [QUOTE]You also need to familiarize yourself with fraudulent conveyance as well as arms length transactions. Either would cause some problems for your family member and the bankruptcy, or at least, increased scrutiny of the transaction.[quote]

    I just typed this long response to you and timed out. Grr

    I imagine fraudulent conveyance is similar to charging up your credit cards and then declaring bankruptcy? If this chapter 7 filing happens it's at least 4-5 months out. That would still trigger a red flag? And, we will be having the house appraised so hopefully that would eliminate any arm's length issues.

    You also must realize that the lender is not going to give up their lien unless they are paid an amount acceptable to them (usually the amount owed on the property)
    I thought I read on this forum that properties with a lien could, in fact, be conveyed? Perhaps I mixed up the threads? In a perfect world, she would convey the house to me and I would continue to pay the lender. Surely that would be preferable instead of initiating a foreclosure? Or add me to the deed and then later remove her? Obviously this is not my forte, I'm just trying to keep my mother in her home.

    how about mom financing the purchase of the home?
    Not possible - her only income is SSI. That is why this was purchased in the first place - to afford her a cheap but safe place to live. I guess what it boils down to is I need to come up 20% and find Financing? Maybe that lawyer was smoking something.

    Thanks for your help.

  4. #4
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    Default Re: How to Keep a House in the Family when Bankruptcy is Involved

    I imagine fraudulent conveyance is similar to charging up your credit cards and then declaring bankruptcy? If this chapter 7 filing happens it's at least 4-5 months out. That would still trigger a red flag?
    yes, it would. They can look back two years on possible fraudulent conveyances.



    And, we will be having the house appraised so hopefully that would eliminate any arm's length issues.
    if the purchase was for market value (which could actually be much less than what it was originally purchased for due to the downturn in the real estate market), there would be no problems with fraudulent conveyances or questions of arms length transactions. The intent it to avoid a person selling a house for much less than market value to avoid losing it in the bankruptcy.



    I thought I read on this forum that properties with a lien could, in fact, be conveyed?
    it would be up to the mortgage lender and most current mortgages include a due on sale clause that is activated when the property is sold or conveyed to another party.

    There are some types of liens that would simply transfer with ownership but a mortgage is not one of them.


    Perhaps I mixed up the threads? In a perfect world, she would convey the house to me and I would continue to pay the lender. Surely that would be preferable instead of initiating a foreclosure? Or add me to the deed and then later remove her? Obviously this is not my forte, I'm just trying to keep my mother in her home.
    So far you are batting 0 at possibilities. What you are suggesting is you assuming the mortgage, regardless what you call it. refer back to the due on sale clause statement previously as well.

    whether the bank is willing to work out something or not is up to them. Only they know if they will or not.



    Maybe that lawyer was smoking something.
    Have you asked? even if it costs you some money, it could give you a solution to the problem. I cannot think of a way to effect a solution given the details provided so far.

  5. #5

    Default Re: How to Keep a House in the Family when Bankruptcy is Involved

    Quote Quoting jk
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    if the purchase was for market value (which could actually be much less than what it was originally purchased for due to the downturn in the real estate market), there would be no problems with fraudulent conveyances or questions of arms length transactions. The intent it to avoid a person selling a house for much less than market value to avoid losing it in the bankruptcy.
    It was a foreclosure originally. I believe the purchase price was $75k and she put down 20%. She opened a HELOC though for $25k so I would have to finance $80k. When it was appraised for the HELOC, the value was $110k.

    it would be up to the mortgage lender and most current mortgages include a due on sale clause that is activated when the property is sold or conveyed to another party.
    So I guess I have her contact the lender and see if there is a ray of hope. I imagine there is a due on sale clause though. I know it's not an FHA loan. Otherwise I wait for the auction.

    Have you asked? even if it costs you some money, it could give you a solution to the problem. I cannot think of a way to effect a solution given the details provided so far.
    No, it's her lawyer, not mine. I will present what you shared with me and have her check the verbiage and call the lender.

    Thanks for posting.

  6. #6
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    Default Re: How to Keep a House in the Family when Bankruptcy is Involved

    Quote Quoting whimseys2000
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    Otherwise I wait for the auction.
    well that makes no sense. If purchased at an auction, you will be required to pay the entire purchase price. That would still mean, if you cannot purchase it outright, you finance the purchase and still have the down payment requirements. There is also the possibility you would not win the auction. If you are willing to do that, why not just buy it now?

    Depending when the appraisal was done, it may be worth less than the $110k. Even if it isn't, since the debt owed is still a considerable sum, I would suspect that the purchase, even at the indebtedness, may be seen as a legit sale. I would at least speak with the BK attorney about that price. This is a crummy real estate market overall so the $80k may be quite acceptable to a BK trustee.

    actually, depending family member purchased it and what has been done to it to improve the value, that $75k may be closer to fair market value than the $110k. Although an appraisers determination is generally dependable in court, an actual sale is proof of value.

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