A recent closed transaction in which we were involved revealed an interesting twist on a foreclosure sale involving a bankruptcy. The facts are these.
A homeowner filed personal bankruptcy. Because the debtor owed substantially more on his personal residence than its value, the trustee released the property from the bankruptcy proceeding. This is a common practice when an asset has no equity available to satisfy creditors.
Subsequent to the release, the property was the subject of an underbid at the sheriff’s sale. Why the lender made an underbid under these circumstances is unknown. Because of the personal bankruptcy the lender had no ability to later collect on the shortfall.
Due to the acumen of a Coldwell Banker Weir Manuel professional, the homeowner quickly put the property on the market and sold it for substantially more than the underbid, retaining the difference.
This technique is normally used to create the best financial situation possible for the seller with the understanding that the lender may pursue the homeowner at some future point in time for the shortfall. In this case, however, the lender would not be able to do so due to the bankruptcy proceeding.
It is important to point out that the seller was advised to seek outside legal advice in this case as we are neither attorneys nor experts in bankruptcy. Understanding all options available to sellers is critical to creating a selling scenario that is in their best interest.
There is a toll-free hotline that will provide critical information about individual bankruptcy cases. By calling 877-422-3066 one can find out if a person has filed bankruptcy, the names of the attorneys involved, and the name of the judge. This information can be accessed by name or social security number, and is free of charge.
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