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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34816
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Does a BK filing invalidate a real estate sales commission

Resolved Question:

Does a BK filing invalidate a real estate sales commission agreement or can a BK judge invalidate it.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 1 year ago.

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy attorney here to assist you.

cfortunato :

1) Are you asking about a Chapter 7 or a Chapter 11 Bankruptcy?

cfortunato :

2) Are you asking about a commission that was earned more or less than 180 days before the Bankruptcy was filed?

Customer:

The commission agreement was signed on July 8. It was prepared by my lawyer for my real estate company , but it is an agreement with his wife's brokerage. Without telling me, he voided the entire exclusions clause and substituted specific requirements that I pay commission on all transactions, including seven prospects that I had been working on for months. I completely trusted him and failed to read the agreement until after I signed it. When confronted about the conflict, he claimed that the commission agreement would even survive a bankruptcy. While disappointed and heartbroken (this guy was a close friend), I am now preparing to fight back.

Customer:

While I don't want to file, I'm just wondering if he was bluffing or if real estate commission agreements do survive. I have already informed him

Customer:

of my intention to cancel the listing and pay any costs incurred by the brokerage, but they may want to fight over it even if I don't

Customer:

No commissions have been earned as yet.

cfortunato :

Thank you for your response.

cfortunato :

Last question - was the agreement between yourself personally and the brokerage firm, or between your company and the brokerage firm?

Customer:

The agreement was between one of my subsidiary companies and the brokerage. The investor I am pursuing is

Customer:

talking about buying equity in the parent company, not the sub that owns the real estate. I suspect that will be my way out.

Customer:

There is no personal guarantee

cfortunato :

Thank you again for your response.

cfortunato :

As I am not familiar enough with business Bankruptcies to be able to help you, I will have to opt out of this question, so that someone else can help you further.

cfortunato :

As I am not familiar enough with business Bankruptcies, I will have to opt out of this question, so that someone else can help you further.

Expert:  Wendy-Mod replied 1 year ago.
Hello,


I’m Wendy, and I’m moderator for this Legal topic. It seems the professional has left this conversation. This happens occasionally, and it's usually because the professional thinks that someone else might be a better match for your question. I've been working hard to find a new professional to assist you right away, but sometimes finding the right professional can take a little longer than expected.


I was checking to see if you had already found your answer or if you still needing assistance from another one of the professionals?


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Wendy
Customer: replied 1 year ago.

My expert wasn't familiar with business bankruptcy and said he would have to defer to someone else in your cadre of experts. I have not yet


answered the question and would appreciate a response from someone else in your circle.


Thanks

Expert:  Wendy-Mod replied 1 year ago.
Thank you, XXXXX XXXXX continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.

Best,
Wendy
Expert:  socrateaser replied 1 year ago.
Hello,

Different contributor here. Please permit me to assist.

Bankr. Code Section 507(a)(4) provides a priority for allowed creditor claims for: wages, salaries and commissions...earned by an individual. This section would permit your "friend" to receive payment of up to $12,475, if earned within the 180 days prior to the date of filing of the petition for bankruptcy. This priority merely means that if there are any assets in the bankruptcy estate, that your "friend" gets to cut to fourth in line, behind domestic relations support claims, bankruptcy court administrative expenses "involuntary bankruptcy 'gap' claims" (irrelevant for your purposes).

Regardless, you would have had to have made the sale before filing the bankruptcy petition. Once filed (assuming a Chapter 7, liquidation bankruptcy of your business subsidiary), your agreement with the "friend" can and will be rejected by the bankruptcy trustee, because it has no value to the estate, and that would be the end of the matter, because the agreement is no longer enforceable against your subsidiary (though, it would give your "friend" a second priority administrative claim -- but, here again, second priority to recover nothing is still nothing -- because unless the deals are signed before the bankruptcy petition is filed, the deals are not part of the bankruptcy estate -- whereas, the agreement with your friend, is part of the estate).

On a more practical level, all you have to do is to have your clients sign new agreements with you as an individual, and rescind the subsidiary agreements, and that would deprive your friend of any commission on those particular deals, since the subsidiary would no longer be involved in the transaction.

Your "friend" could claim a fraud, but if the clients testify that they wanted to deal with you directly, rather than through your subsidiary, and your refusal would have meant that the clients would have simply refused to complete any deals and allow the listing (or whatever) agreements to expire, then that would demonstrate that you were not trying to defraud your "friend," but rather that you were simply acquiescing to the client's requirements -- which as an agent, you are generally required to do.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34816
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 1 year ago.

That's very helpful. I appreciate the thoroughness of your reply. BK is not my preference, but I can't tell yet if the broker is going to fight to retain the agreement or if he will agree to a modification that settles the disagreement. Many thanks for the insight.

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