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TJ, Esq.
TJ, Esq., Attorney
Category: Bankruptcy Law
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Experience:  JD, MBA
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In Aug 96, XXXXX XXXXX contracted to purchase a commercial building

Resolved Question:

In Aug 96, XXXXX XXXXX contracted to purchase a commercial building for the purpose of leasing it out as multiple apartments and offices. Then he solicited partners to form an LLC to raise the money for the down payment. I am one of those partners. Josh then closed on the purchase and the building was titled in his name with an owner financed mortgage also in his name. He then conveyed the building to the LLC via quit claim deed but the mortage remains his personal obligation. The LLC established a Bank line of credit and both Josh and I guaranteed it. The LOC is maxed. Josh provided me with a personal written guarantee that he will be personally liable for my guaratee to the bank. Josh is now considering personal Ch 7 bankruptcy. Question: What happens to the building, ,which the LLC owns, and the mortgage Josh is solely responsible for? What do I need to do to enforce Josh's guarantee to me when the bank attempts to collect from me on the LOC after Josh's bankruptcy filing?
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  TJ, Esq. replied 8 years ago.

Hello and thank you for allowing me the opportunity to assist you.

Question: “Question: What happens to the building, ,which the LLC owns, and the mortgage Josh is solely responsible for? What do I need to do to enforce Josh's guarantee to me when the bank attempts to collect from me on the LOC after Josh's bankruptcy filing?”

Answer: Assuming the mortgage is included in Josh’s bankruptcy (it doesn’t have to be), then the lender will likely foreclose on the property. It doesn’t matter that the LLC owns the property since the lender’s security interest is still valid. Unfortunately, there is nothing you can do to collect from Josh if he includes your debt in his bankruptcy. It would be illegal to attempt to collect once the bankruptcy is filed (even a lawsuit is precluded). And if your debt is included in the bankruptcy, then a lawsuit would be precluded after Josh is discharged since the bankruptcy discharge acts as a permanent injunction on collecting the debt. I wish I had better news.

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

Although my answer was unfavorable, please understand that my goal was to provide you with honest information. With that in mind, I hope that you found my answer useful. If so, then please remember to click the green accept button so that I will receive credit and compensation for my time. Positive feedback is always appreciated as well. Thank you and good luck!

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DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the state of Maryland. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.

 

Customer: replied 8 years ago.
I gather from your response that Josh can exclude any debt he wishes from the bankruptcy?
Expert:  TJ, Esq. replied 8 years ago.

Question: “I gather from your response that Josh can exclude any debt he wishes from the bankruptcy?”

Answer: To an extent. Josh may repay any debt he wishes. However, he may only sign a “reaffirmation agreement,” which keeps him legally liable, if doing so is in his best interests and is not overly burdensome. People generally reaffirm their debts when they want to keep the collateral that secures the debt. For example, if a debtor wants to keep his car, he may reaffirm his car loan. Similarly, Josh may want to reaffirm the mortgage if he wants to keep the property. As stated, however, keeping the debt cannot be overly burdensome since that affects the “fresh start” that bankruptcy is designed to provide.

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the state of Maryland. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.

Customer: replied 8 years ago.
Thank you for your cogent and timely responses. One last question. When the building is sold at foreclosure, what is the order of disbursements?
Expert:  TJ, Esq. replied 8 years ago.

Hi again. Glad to help.

Question: “When the building is sold at foreclosure, what is the order of disbursements?”

Answer: The lender with the first mortgage will be paid first. If there is a second mortgage, that will be paid second, and if there is a third…you get the picture. After the lienholders are paid, and if there are any funds left over, then the money will be disbursed to the foreclosed owners of the property (i.e. the LLC).

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the state of Maryland. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.

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