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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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The situation a california property, retail value about $530,000,

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The situation: a california property, retail value about $530,000, first td about $350K, second about $225K. Owner is in Ch 13 bankruptcy. The first has foreclosed and was close to the sale date when bankruptcy was declared.
Question 1. I have heard that the second is considered unsecured for purposes of bankruptcy. Is this true?
2. would the bankruptcy trustee consider this property to have equity or not, given the above estimates?
3. if i could buy the property on a short sale of $400k, would the bankruptcy trustee be likely to allow it and remove it from the bankruptcy
4.My real thought is to buy the first from the noteholder at its face value, and continue the foreclosure,thus wiping out the second and getting the deed. My concern is that if I buy the note but cant get the property removed from bankruptcy I may wind up with a big headache and no profit. Is there any way under this scenario from getting the property out of the bankruptcy either before or after purchasing the note
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 7 years ago.

Question 1. I have heard that the second is considered unsecured for purposes of bankruptcy. Is this true?

 

A: Yes, but only if (1) the 1st is worth more than fair market value (which on your facts is false); (2) the debtor files a motion with the bankruptcy court to have the 2nd declared unsecured, and (3) the debtor successfully completes the bankruptcy plan.

 

2. would the bankruptcy trustee consider this property to have equity or not, given the above estimates?

 

A: No.

 

3. if i could buy the property on a short sale of $400k, would the bankruptcy trustee be likely to allow it and remove it from the bankruptcy

 

A: Probably, if the secured creditors aproved the deal, and no unsecured creditor is prejudiced.

 

4.My real thought is to buy the first from the noteholder at its face value, and continue the foreclosure, thus wiping out the second and getting the deed.

 

A: That's legal, as longas you get an order lifting the automatic bankruptcy stay, which assumes that the debtor is not current on the 1st.

 

Hope this helps.

 

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Customer: replied 7 years ago.
Regarding your answer to 4a: Under this buying the note option, on what basis would the bankruptcy court Ilift the automatic stay? the owner is not current on the first.
Expert:  socrateaser replied 7 years ago.

Not being current is all the court needs, unless the bankruptcy plan expressly permits the borrower to catch up the payments over the course of the plan, and the debtor is current on the plan -- then you're stuck unless the debtor can't pay according to the plan.

socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 7 years ago.
Thank you for your help.
Expert:  socrateaser replied 7 years ago.
You're welcome and good luck.