I’m here today with the answer to a question I get pretty frequently about sellers in bankruptcy:
“Can I buy a motivated seller’s property if they’ve recently filed bankruptcy?”
So, I often get asked this question because in our Motivated Seller Data Feed, bankruptcy is one of the filters users can select as a type of motivated seller. And frankly, with the coming wave of foreclosures, this is the perfect time to prepare for dealing with sellers in bankruptcy. So, it’s a great question.
In other words, if a homeowner files for bankruptcy, can they sell us the home?
The answer: Maybe, because it depends on where they are in the bankruptcy process and what type of bankruptcy it is.
DISCLAIMER: I am not an attorney. Always consult an investor-friendly lawyer on bankruptcy (and all) legal matters.
Having said that, I’ve done plenty of deals with sellers in bankruptcy over the years and I’ve seen some variations, so I’m speaking in general terms based on my own experiences.
What’s The Deal With Sellers In Bankruptcy?
Ok, once a homeowner has filed for bankruptcy, at that point, their assets are not theirs to sell…
They still possess them, they’re still the title holder, but they’re generally forbidden from selling them because the court is either going to work it out with their debtors (Ch 13) or liquidate those assets (Ch 7) to settle with their debtors once and for all.
Now, in general when you’re dealing with bankruptcy, you’re going to be working with the bankruptcy court and, in many cases, there will be a trustee or even the actual judge or an appointee of the judge within the court that you’ll work with.
It’s the court that will decide (based on state laws) whether or not the house will be sold and for how much, because it’s up to them to do the best they can to settle the debts.
Here’s Where It Gets Very Interesting
So, when the house is in need of significant repairs, that throws a giant layer of ambiguity on the property value in the eyes of the court.
Well, because the court may or may not get repair cost estimates… and, in either case, can create uncertainty and ambiguity as to the value… and this creates a greater opportunity for you and me. 🙂
And that is very good, right?!
The Final Verdict
So, let’s say you can, in fact, work on a bankruptcy deal…
If the seller is motivated to sell the house, they’ll refer you to whomever you need to be talking to in the bankruptcy court because, if a sale is imminent, they will likely want to get the BK “discharged,” (aka settled), as soon as possible. Because, of course, they want to get on with their lives.
If the homeowner sees you as someone who can help expedite that process, they’re going to advocate on your behalf.
That, too, is very good!
And right there is that win-win we want to see in every deal we do.
So, yeah… doing deals with sellers in bankruptcy is possible. Just do a little digging — and consult an attorney — to see if it’s actually worth moving forward on it.
And if you’re interested in finding and working with these types of sellers (as well as many others), you can get nationwide access to them with a few clicks of a button by using the Motivated Seller Data Feed. Try it for $1 here.
Have you ever worked with sellers in bankruptcy? What questions do you have or experiences have you had with these types of sellers? Let me know in the comments!