Unique S2 problem: Help exp. inv/attorneys

Hello all!

        A little over a year ago we entered into a Lease/Option disposition of a house that we had acquired Subject To.  The sub2 and lease/option documents were all done correctly, ie. "the Bill Bronchik way” and Texas State specific. We just finished the one year option period on 7/26/04. Both the separate lease and separate option agreement were for one year only.  This has been a really good tenant/buyer who has cooperated and paid on time faithfully every month. We are in the process of writing a new one year option agreement and in Texas her lease defaults to a month-to-month basis. Here comes the problem with a unique twist. 

        On 7/26/04 we received a first class letter, as opposed to certified mail, from the Bankruptcy Court where the tenant/buyer had filed Chapter 13, personal bankruptcy, announcing a creditors meeting. The tenant/buyer has paid the August 2004 rent as of today. Now, all of a sudden, I am a little confused as to what to do. Something tells me that I may be dealing from a position of strength because the first year option agreement has expired and they are simply on a month-to-month lease. If they threw the lease agreement into the bankruptcy I think I can ask the judge to lift the stay and evict them with only two months lost. I’m not sure if I’m right. 

If I enter into a second year option agreement I am afraid somehow their bankruptcy attorney will use it to their benefit and my detriment but I don’t know exactly what would transpire. The tenant/buyer is currently pressing me for this second year option agreement. Additionally, there is another confusing thing. The tenant/buyer says they are on a Chapter 13 five year payout plan. The five year term messes up what we usually have as an 18-36 month option holding period. Also, if I have prior knowledge today that she has just filed Chapter 13 and subsequently next week enter into a 2nd year option period I’m afraid it might make me culpable somehow.

I would really appreciate it if any experienced investors or attorneys on this board could shed some light on my dilemma. Thanks in advance for any opinions.

Sandee Houston,Tx

P.S. Terry (HOU), where are you when I need you??

Howdy Gene:

The bankruptcy notice from the court does not need to be certified.

I do not believe you will have much luck with an eviction if they continue to pay rent. Since the option has expired I believe you do not have to give them another. If you do the court will have to approve it and it would be difficult to get this thru the court creating more debt. It would also be hard and expensive if they even can get a new loan.

If you can get thru the initial phaze odds are that they will not make it thru the 5 year plan. Most screw up and a lot of them really quickly.

You would be better off to continue renting until they move out or you have to evict for non payment. You will have to file the motion to lift stay. I am not sure but you may even have to go to JP court to file the eviction after winning the lift stay?

The chapter 13 is a reoganization of existing debts. ie. if they had owned money they have up to five years to pay the back debt. They still have to pay the original payment on the debt. The bankruptcy does not effect post filing debts and if they do not pay they can be evicted. I would not give them the option until they have performed on the plan for a while. They have to have permission of the court to incur more debt but I do not believe to rent.

And why do you believe all the documents were done correctly and state specific?