Buyer filed Chapter 13, balloon payment due

General Real Estate Investing
1

I bought on owner financing four years ago and I make the payments directly to the lender.

Two years ago, I sold it on owner financing with a note due this July 1st (2 year note)

The buyer defaulted, and we had a foreclosure date of June 7th. A month before the note was due anyway. I had to stop payments for the underlying mortgage because my buyer defaulted, but I made 2 more payments to the lender than the buyer did to me.

The buyer files for emergency Chapter 13 on June 6th stopping the foreclosure.

Now what? I am defaulting on the underlying mortgage because no payments behing made to me. I want them out and I will be letting the property go into foreclosure anyway because I don’t want it anymore. Sank too much money into it and I want out.

From what I understand, the underlying mortgage cannot foreclose because the current owner on the deed is in bankruptcy. If the court will make them make payment plan, then I will pay the mortgage company of course. But I had a balloon payment due in July?

2

Fadi,

I feel your pain.

Why did you transfer the deed to the buyer in this case? Was that your only alternative to get it sold?

The issue I see here is that the original borrower is now being damaged by your action(s). It doesn’t make any difference to the original borrower that your buyer failed to make the payments. You created a covenant with the original seller to make his loan payments.

By allowing this loan to go into default, or worse, you are also putting yourself at risk of a lawsuit for damages by the original borrower.

It would seem smarter to pay the buyer to get out and then resell the house again on terms (recovering your out of pocket expenses) and use a balloon date.

Meantime, if you put a bunch of late payments on my credit report, I would spit nails! I would also sue your butt off until you were forced to do handstands to poop.

Just saying.

3

I gave the deed because it is owner financing, can’t do contract for deed in Texas, and that was the deal that we did. The buyer refused money to move out, offered her her down payment back $5k and she countered by me removing $60k off the loan and extend her note for few more years because (you have lots of money and I can sue you) argument. She, in her own mind, playing to get the house free and clear but she doesn’t understand she cannot just dimiss the notes.

I tried to work it out with the owner, but he is not responding to calls. He already filed bankruptcy (house was excluded) and had a foreclosure on his other home so his credit is not great. He also signed that his only recource is the property.
I understand the moral obligation to keep making the payments on the underlying note, but no income coming in makes it difficult to do so, and the seller not caring makes it difficult to work something out.

Now, the issue is the bankruptcy. She filed bankruptcy that would extend the payment beyond the balloon due date. From what I understand, even the underlying mortgage cannot foreclose.

I’m trying to figure out what to expect to happen with the bankruptcy.

4
I gave the deed because it is owner financing, can't do contract for deed in Texas, and that was the deal that we did. The buyer refused money to move out, offered her her down payment back $5k and she countered by me removing $60k off the loan and extend her note for few more years because (you have lots of money and I can sue you) argument. She, in her own mind, playing to get the house free and clear but she doesn't understand she cannot just dismiss the notes.

I tried to work it out with the owner, but he is not responding to calls. He already filed bankruptcy (house was excluded) and had a foreclosure on his other home so his credit is not great. He also signed that his only recourse is the property.
I understand the moral obligation to keep making the payments on the underlying note, but no income coming in makes it difficult to do so, and the seller not caring makes it difficult to work something out.

Now, the issue is the bankruptcy. She filed bankruptcy that would extend the payment beyond the balloon due date. From what I understand, even the underlying mortgage cannot foreclose.

I’m trying to figure out what to expect to happen with the bankruptcy.

Okay, these are new, important points you’ve brought up.

So, you’ve got a buyer that wants to cheat you and the bank, attempting to use bankruptcy to stall the foreclosure, and you’ve got a seller that won’t respond and has no recourse by agreement. That’s the Trifecta of doom here!

You just reminded me why I want big down payments/options in Texas… Otherwise, I want to offer a modified lease/option disguised as a sale (still Sub2).

It’s likely that your buyer will not follow through on a BK filing. I’ve seen many people do this, and pull punches in the end, when it comes time to actually settle. I’ll assume your buyer is serious about BK’ing.

In this case, short of maintaining the loan, I would let this baby go back to the bank. You’ve got nothing to lose here, since nobody wants to cooperate.

I write my contracts in such a way that I can get a judgment against my buyer for default on the note (not connected to the property, and not subject to a BK filing, if I’m quick enough).

If that doesn’t work, I want to file the Quit Claim Deed from the buyer to me, and subsequently sue for eviction. If that doesn’t work, then I want to force the buyer into the choice of moving with money, or filing for BK asap (not after 3 months, but within days of finding out which way the buyer is going to jack with me.

The bankruptcy is probably not going to help the buyer. It’s usually just a delay tactic. Unless the buyer has some sort of unique, plausible, objective “fraud story” to tell the judge …the judge will order the house be sold forthwith.

Forget the balloon date for now. That’s immaterial at this point, unless you also initiate foreclosure proceedings for your note, and force the buyer to include you as a creditor. If you foreclose on the 2nd, the first will usually allow you to make up the payments and continue paying on the loan as a junior creditor. After all “somebody” paying is better than nobody paying, not to mention this is a courtesy extended to junior lien holders in the event of default.

That’s all I’ve got. Seems like a loser situation, unless you can still make money by reselling the house…after all the trauma and drama is over with… :banghead :banghead :banghead

5

she already filed and stopped the forclosure. I would love to have the bank foreclose and take the house back, but most likely the bank won’t/can’t since the current owner is in bankruptcy.
i’m trying to figure out what next.

6

YOU had a balloon due? I misread this. So, the balloon note was due for YOU …and subsequently you made the note from your buyer to you also due at the same time?

Now, the buyer won’t pay, and you’re not paying, and it all blows up on paper in July anyway, and you didn’t want the property anyway, so anyway, you don’t care…

So, what’s your question again!!! :biggrin :biggrin :biggrin :evil

7

I bought on a wrap without a balloon. But I sold it on a wrap with 2 year balloon that is due July 1st. So my buyers have the balloon due end of the month. They filed bankruptcy one month before the balloon payment was due.

I have made 2 more payments to the mortgage company than my buyer did to me (Feb and march), but when it became obvious they do not intend to make anymore payments, I stopped making payments on the loan since I do not have the income coming in anymore.

My questions:

  1. Buyer declared chapter 13 to stop the foreclosure on June 6th. The Bankruptcy automatically stops my foreclosure process. What happen to my balloon? since there is a balloon shouldn’t their option be buy or foreclose? and how long does the process ususally take?

  2. Since the buyer stopped making payments, I stopped making payments to the underlying bank (2 month behind now). Soon they will file for foreclosure on the property. Can they do so when:
    a. The current owner is in bankruptcy even though they have no contract with the buyer?
    b. if the bank does foreclose on them and kick them out while they are in bankruptcy, am I liable? my reasoning is that since they stopped payments, I do not have the income to make the payments so they forced my hand and caused the underlying bank to foreclose.

Hope this clarify things

8

Apart from all the background noise here, the bottom line is that the judge will OK the foreclosure at some point.

Did YOU foreclose, or did the bank, or both?

9

I forclosed. the bank has not sent demand letter yet/accelerated the note yet.

10

I’m sorry Fadi for not absorbing all the details…

My questions: 1. Buyer declared chapter 13 to stop the foreclosure on June 6th. The Bankruptcy automatically stops my foreclosure process. What happen to my balloon?
[b]Your (the buyer's) balloon date comes and goes. The buyer is already in default for not making payments, so missing the balloon date is beside the point. [/b]
...since there is a balloon shouldn't their option be buy or foreclose?
[b]This statement doesn't make sense to me.[/b]
...and how long does the process usually take?
[b]Foreclosure can take as little at 3 mos (not including the NOD filing date(s)), or as long as the borrower stirs the legal pot to protect his interests (or he runs out of money/options; whichever), if any.[/b]
2. Since the buyer stopped making payments, I stopped making payments to the underlying bank (2 month behind now). Soon they will file for foreclosure on the property. Can they do so when: a. The current owner is in bankruptcy even though they have no contract with the buyer?
[b]Yes.[/b]
b. if the bank does foreclose on them and kick them out while they are in bankruptcy, am I liable?
[b]No. Unless the original borrower decides to litigate the contract terms that limited him from any recourse other than taking the house back (which doesn't seem likely at this point).[/b]
...my reasoning is that since they stopped payments, I do not have the income to make the payments so they forced my hand and caused the underlying bank to foreclose.
[b]"Why" you stopped making payments has zero effect on your liability to the original seller and/or lender. You either made payments, or you didn't. This goes for your buyer, too, for that matter.

That’s the best I can do for you!

Good luck.
:beer :banghead[/b]