Can you continue a Bank Foreclosure in NJ?

My seller has filed bankruptcy to delay the foreclosure.

Can I approach the bank, buy the mortgage and continue the foreclosure?

This might be my last choice to get the house, but if it’s my only option, I’ll try it. I don’t want to have to start from the beginning and wait the 36 months that is seems to take.

Thanks. Dave


In Bankruptcy a property owners property or note can not be sold without court permission. So the current note holder if they were inclined to sell the note, will have to seek court approval for change of disposition. 

If the property has no equity or insufficient equity to support a arms length transaction it is likely to be ordered foreclosed by the court, if their is sufficient equity in the property the bankruptcy judge is likely to order it listed for sale by a licensed agency for best possible offer!

Bankruptcy is usually a two edged sword and not interested in a private sale as creditors are due as much money as possible and the only way to insure the court has tried to recover as much as possible is a realtor listed sale.

Keep in mind if the property has a second trust deed it has to go through foreclosure to remove the 2nd, however in most states the 2nd TD holder has 1st right to buy the underlying TD.

In order to buy the note under Dodd Frank you will have to have a licensed servicing company to manage the note and your likely going to need to start foreclosure over as you would probable not be able to assume the current position as your not a bank or lender.

Original owner now has no control over the property and it now comes under control of the court!

Good luck,


Wow, this just frustrates the heck out of me. Everything GR said is correct, but this is a continuation of a previous thread where you mentioned that you could get a $500K property that is coming up on sheriff’s sale for under $200K. You asked how you could postpone the sheriff’s sale and buy the property from the owner and someone on this board said to tell your client to file for bankruptcy and you did it. I tell people on this board time and time again to phone the state bar and get a free 1/2 consultation and referral with a real estate lawyer or bankruptcy lawyer as the laws vary from area to area. Not only that, there are a lot of keyboard jockeys on this website who have no direct experience doing deals and give incorrect legal advice. What you should have done was consulted a real estate lawyer about delaying it after getting advice from this board to verify it’s true in your area and I’m sure he would have told you within the first minute not to let the seller file for bankruptcy. It may have cost you $2,500 to pay a lawyer to file a motion to postpone the sale for a month or two to get more time to pay the mortgage off, but at least you had a chance.

Now it’s lost. When the seller pays $1,800 or whatever the rate is in your area to the bankruptcy trustee to file for bankruptcy, the trustee represents all the seller’s creditors, not the seller, and must disclose all financial details to the creditors. The seller has to hire a second trustee or bankruptcy lawyer to represent their interests if they want representation (but there usually isn’t much point unless there is a proposal on the table).

The bankruptcy trustee has to get the best deal for their creditors, which means they have to get a letter of opinion of it’s value from a real estate agent or an expert appraisal. Then they have to have it approved by the bankruptcy judge. So, the real estate agent says, hey this property is worth half a million based on neighboring properties worth $1.5m-$2m to get the listing. Now, equity is shown and the trustee is obligated to list it for sale through the real estate agent so the trustee can pay back some of what all the other creditors are owed. Any contracts you made to buy the property are void at this point as the seller no longer has control over the property. You are now going to have to bid against other cash bidders. Good luck.

Thanks for all the great information, I had no idea that the owner would lose control of the property if they filed for bankruptcy. I didn’t advise her to do that, it was her lawyer.

The owner was telling me that she could withdraw the bankruptcy when we get our contracts in place to display that she has a buyer willing to pay enough to repay her creditors, is that correct?

I would hate to lose this deal, especially when I can get the seller enough money to cover her debts and get some extra to start anew.

I’ll keep posting with info that develops and hopefully I can get some help to get me through this and on to a good deal.

Thanks Again. Dave

Yes, that is correct as long as the trustee hasn’t sold the building before you come up with the cash to buy the house and pay off all her unsecured creditors, the realtor’s commission, and the trustee’s fees. You need cash on the spot.

She lost control to postpone the sale and the trustee can sell the house right out from under you if there is equity to repay other creditors since it’s the trustee who has control. How much does she owe all her creditors in total? If she owes $150K to her credit card companies, you have to pay that off too to cancel her bankruptcy and have her regain control. I’m guessing it’s a significant amount to want to damage her credit for 7 years and file for bankruptcy. You have to pay everything off to cancel the bankruptcy, not just the mortgages on the house because the unsecured creditors want the same equity you want; they want all their money back if they can get legally get it.

This was in my post under another topic:

I have a seller that hasn’t paid her mortgage for a while and her house is up on the block for 01/02/2013 at the Sheriff’s Sale.

They have the amount on the Sheriff’s Sale web site as $198k, but her house is worth almost $500k as a tear down, they are building $1.5-2.0Mil houses in the neighborhood.

She owes $198k to the bank for her mortgage.
She owes $100k to an ex-employer for a loan for medical bills, she had cancer and had to undergo treatments.
She owes about $40k in IRS liens for back taxes.
I think that’s it.

She can pay off her bills, start with some money to get on with her life and I would get a wholesale fee for setting up with my builder/buyer.

Can this work if we present a contract to cover everything that she owes and get it squared away or do we have to pay for / buy all these liens to get the owner back in control and then go to contract?

Thanks again, you guys are great. Dave

If those figures are correct, you would have to pay $140K ($100+$40) to the unsecured creditors and most likely the $198K secured lien to cancel the bankruptcy (if the bank wants their money, which I’m guessing they do if it went to sheriff sale) plus additional trustee fees and the realtor commission if the realtor listed it. Just because the realtor didn’t sell it, doesn’t mean he’s not entitled to it once a listing agreement is signed. The trustee is also entitled to additional fees. Hypothetical–if the building is worth $400K, you may have to pay the realtor 6% ($24K) + another $15K to the trustee. Those numbers are just hypothetical. This would all have to paid in cash before you can cancel the bankruptcy before the seller can regain control of the property. Once she regains control, you can go to contract; otherwise, the contract is void.

Remember, the bankruptcy trustee represents the creditors, not the seller. You can’t negotiate with the unsecured creditors if the trustee sees equity in the property that could be used to pay off the unsecured creditors. The trustee is legally obligated to use the equity in the home to repay the unsecured creditors and the realtor will tell the trustee what they think they could sell it for and give an opinion on what the equity is.

There is something called a consumer proposal where you can negotiate the debt if there is no equity. But, it doesn’t apply here because you already said there’s enough equity to cover her unsecured debts and I’m sure the real estate agent would also say the same thing based on the same comps you’re using.


Since New Jersey's foreclosure process is one of the longest in the country exceeding 250 days or longer she probable owes the last 8 to 12 months of payments, probable taxes and insurance and like most Americans probable owes a little on credit cards and possible a car loan. 

If this is a sought out area of New Jersey it would not surprise me to see the judge hold the process open for some period excepting all offers and creating a bidding war. Kind of a submit all best and final offers!

Now considering this is a bankruptcy if the house has sufficient equity to pay 100% of debt the bankruptcy judge will also protect her interests and try to get as much cash as possible to return to her net of the debt owed to creditors.

I could easily see a realtor say retail value is $550k to $600k and push to sell it full retail to the best offer, this way this woman could still walk away with $150k to $200k after the fact.

What I don’t understand if your numbers are right is why this women did not put this property for sale through a realtor when she missed her 1st or 2nd payment as she could have paid off her creditors and bought a smaller home outright with the equity you describe? I hope you understand and have evaluated the market correctly!


Thanks for all the responses.

I have evaluated the market correctly, I’m an appraiser and have done research on what builders are paying for lots to rebuild houses on in this market.

If a Realtor follows the same research that I did, which may not be the case, they would see that most similar lots for reconstruction are selling in the $350k-$450k range and that it wouldn’t come close to “I could easily see a realtor say retail value is $550k to $600k and push to sell it full retail to the best offer”.

My buyer is willing to pay more than enough to get her to cover all the debts, get the seller enough money to make a new start and get me a wholesale fee.

My biggest challenge at this point is to work with the Trustee and see if we can get the numbers in line to get the home owner out of trouble and hopefully make a wholesale fee for the efforts.

Thanks again, I’ve never worked with a Bankruptcy and all this information has given me some good insight as to what goes on.

I’ll keep posting as I get more info.


I just spoke with the home owner again and she said that she wasn’t aware that she might lose control of the property if she declared bankruptcy, she was not happy with her lawyer.

She said that she would try to withdraw the bankruptcy, that’s what her attorney said she could do at any time, and get it under contract with us for a price that would cover all of her debts and show the court that she could settle up with her creditors.

Can she do this and keep control of the house?

Do we have to come up with all the cash or proof of funds to show the bank we can finalize the deal?

I’m trying to wholesale this property, I have a cash buyer, but it’s my first deal with him and don’t know him as well as my other buyers.

Thanks again for all the info. Dave


You now have serious problems! In New Jersey foreclosure is done judicially so this has already gone in front of a judge and been ordered to be foreclosed! 

You are a new investor, I give you kuddo’s for tenacity but morally and ethically you hold this women’s future in your hands! Is getting this property so important that you would put her in a position where rather than paying off all her creditors in bankruptcy you would rather have her withdraw and dangle her over the edge of the ravine hoping you can pull off this deal.

She has an opportunity to walk away through bankruptcy No Harm No Fowl! Where is your sense of ethical investment? In this case she has enough equity to allow her the rare chance where a bankruptcy will not even haunt her as after her creditors are made whole, this case will be dismissed rather than filed as a closed discharged bankruptcy!

She should know if she filed bankruptcy the court is going to sell assets to pay creditors as she has much, much more equity than the debt against the house.

Your problem is the foreclosure stay was done by the bankruptcy filing, if this is withdrawn I think it will likely go on the next days foreclosure auction calendar as the “Stay” provided by bankruptcy filing being removed allows the foreclosure to go through.

You will have way to many issues to get through on this, we talked about some of them, but if she withdraws the extension of time for bankruptcy review of the foreclosure starts again and it will be sold within 24 hours and a foreclosure will follow her in every financial transaction she tries to do for 7 to 10 years.

Like I say where is your sense of right and wrong? She is in the perfect place for the ability to come out smelling like roses and you want her to withdraw the bankruptcy. In fact her creditors would get nothing if this is foreclosed on and her credit then shows these debts unpaid for 7 years.

Just do what’s right here, not what gets you the most money!

                     Gold River

Thanks again for all the info and for the comment on tenacity. I am still a beginner after 7 deals, this one is a situation that I have not had to deal with yet.

I don’t want to look like a scoundrel here, I am not trying to shaft this home owner.

She called ME about selling her house and I didn’t know she had all these issues until after we agreed on a price and I contacted my buyer.

I’m trying to put together a scenario that helps this home owner, and for my time, try to make a living.
I’m not trying to trick her out of anything, she knows what’s going on with my side of things and is happy to have me help her out and receive something for my efforts.

She’ll be getting enough money to cover her outstanding debts and enough to get a great head start with her new life instead of the bank just getting everything.

Again, I’m not that versed in the Foreclosure/Bankruptcy field and am just trying to find a way for her to move on and start new. I’m just asking the questions about withdrawing because I don’t know what that would mean for her or if that’s the best/worst case.

I’ll keep posting with how it’s going. Thanks for all your input, I hope it helps me to ask more questions of sellers so I can understand their situation before I get all spun up and may not be able to help them.