As a lot of you may know as agents, short sales can have a lot of red flags or road blocks. With my experience in short sales and through my teaching and training I try to alleviate agents from my experiences to not have to hit these road blocks. Recently I have been getting a lot of phone calls and emails about bankruptcy and how it relates to short sales. Now I am not a financial advisor or attorney, I don’t play one on TV, and I didn’t stay at a holiday inn express last night! I work with a team of attorneys to try to stay versed on short sale law for my own education, but I never try to interpret law in any way shape of form, With that being said: If you have a potential client who wants to perform a short sale and is planning on filing bankruptcy, or has recently filed bankruptcy, this may dismantle the whole process. Most sellers in a short sale situation usually are in a situation where there is some sort of financial strain or burden in their life, so bankruptcy is usually one of the options (not always) a potential seller may be considering. If a potential seller is thinking about bankruptcy or has recently filed you have to know right away, as this affects whether or not you can even perform a short sale. If you are going to be active in short sales, it would be wise to consult with local attorneys to get a feel for bankruptcy and how it affects real estate in your particular region. I would like you to all remember that I am giving you this information for educational purposes and not for you to go out and give legal advice. I would ask that in cases where bankruptcy is involved consult with an attorney, and never give legal or financial advice to a client. I am just giving you information based on my experiences to save you time, trouble and to more efficiently help your clients. I have gotten many questions on this subject and for the sake of time, and to not get overcomplicated here are the three most asked questions,
I have gotten recently:
What do I do if a client is in bankruptcy and wants to perform a short sale?
You have to consult with the attorney to see if a short sale is even viable in this situation. Bankruptcy puts everything on hold and depending on the type of bankruptcy the property may be included or excluded from the bankruptcy. In almost every case I have dealt with, nothing can be done until the bankruptcy has been fully discharged, or the court grants the motion for the property to be sold at short sale. Either way, you have to know, that is why it is imperative to talk to the seller’s attorney. The bank will also require you provide the paperwork showing the discharge, or the motion granting the sale.
What if a client has recently gone through a bankruptcy and wants to perform a short sale? Similar to the answer above you will have to get evidence that the property can be sold and that the bankruptcy has been discharged. In this case, even if the seller tells you the bankruptcy is finished, you need to contact the attorney to get the correct information. Bankruptcy can be extremely complex, so it is very important that you get the correct information and have a clear understanding moving forward.
What if a client is planning to file bankruptcy while we are in the short sale process or files bankruptcy while in the short sale process? If this happens this can potential derail you efforts. Once bankruptcy starts, everything stops. Before you start the process this is something you need to know. Short sales are not easy tasks and you do not want to be midstream in a short sale, and then have to stop because the sellers files bankruptcy. It is not our job to give advice as far our opinion if a seller should file or not, but it’s something that you should discuss before you start the process so that all parties have a clear understanding moving forward.
In either case you have to if it has been discharged and the property is available for sale, or if you’re going into the bankruptcy, you have to get a motion from the court to sell the property. In cases that I have dealt with where a motion has to be granted because it is an active bankruptcy, generally this is not hard but adds a lot more time to the situation. For the purpose of ease, unless you are really experienced in this field it may be better off only dealing with properties that have been fully discharged, or have granted the motion to sell the property before you even start the process.
Hope this information helps. Happy Selling!!