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Realtors need to know this about bankruptcy
Realtors may be asked to sell a house that is underwater; the amount owed on the mortgage is less than the value of the property. What is the best approach? First, find out everyone involved in the transaction and what they are doing – who is working on for the bank, does the bank have a release price, will the bank agree to allow enough time to market the property, or is the bank getting ready to do a foreclosure sale? Who is representing the homeowner and is the homeowner in bankruptcy?
If the homeowner is in bankruptcy, call the bankruptcy lawyer to find out whether a sale is possible and, most importantly, do not do any work unless and until the Bankruptcy Court approves your employment. Brokers that sell a house for a client in bankruptcy will not be paid unless the Bankruptcy Court has first reviewed and approved the sale contract. One other important consideration in bankruptcy – what happens if the client you get to buy the property is outbid in a bankruptcy sale? (more on bankruptcy sales in my next post.) Do you still get a commission even though your client did not buy the home? You can protect your commission in the event that the home is sold to someone other than your buyer by including a provision in your contract that your commission is earned so long as the property is sold for a sum in excess of the amount of your client’s bid. However, you may have to share your commission under these circumstances but that is far better than no commission at all. one other thing to think about in bankruptcy sales – what if the debtor is the winning bidder (i.e. perhaps the bidder has family members that will front the money necessary to buy the property)? Good drafting of your employment agreement can protect you in these circumstances as well. Being careful and informed are the keys to being successful when selling distressed real estate.
The Trouble with Trusts
Many attorneys and debtors alike are completely baffled by Trusts. This post will provide you with the tools necessary to identify trust types, what your interest in a trust might be and how to protect it. The following sections of the Bankruptcy Code are commonly applicable in cases involving trusts: 11 U.S.C. §541 (property of the estate); 11 U.S.C. §542 (turnover); and 11 U.S.C. §§544 and 548 (state and federal law fraudulent transfer avoidance). 11 U.S.C. §541(c)(2) specifically protects the debtor’s beneficial interest in a certain type of commonly encountered trust known as a “spendthrift trust.” In the absence of a spendthrift or discretionary clause in a trust, the beneficial interest of a debtor may be reachable by the bankruptcy trustee, a bad result. Watch out also to be sure your trust has the correct “spendthrift” language required by your state. Trusts established by a debtor (so called “self-settled trusts) for their own benefit are usually not valid. Be very careful to examine the powers of the Trustee of the Trust. If the Debtor is also a Trustee of the Trust, those powers can be exercised by the bankruptcy trustee, another very bad result. The following is a handy list of documents that will help to determine the type of trust you may have and how it will be treated in bankruptcy:
- Declaration of Trust or other similar document
- Trustee Certificates
- Schedule of Beneficiaries
- Inventory of Trust property, Deed or Bill of Sale evidencing property owned by trust
- Trust Bank Account Statements
- Mortgages and other instruments evidencing the liabilities of the trust
- Trust tax returns
- Debtor and non-debtor beneficiary tax returns and K-1’s
- Amendments to trust documents
- Trustee Resignations
- File of attorney that established the trust
Trust interests are quite complex and, for that reason, often overlooked. Never file bankruptcy without first carefully reviewing the impact on a trust.