Effect of Bankruptcy Filing on Foreclosure?
I anticipate having to foreclose on property worth between $50K and
$75K. The mortgagee has said that if I foreclose he may just have to
file for bankruptcy to protect his interests. He owes me $41500 and he
owes overdue real estate taxes of $7K. If I go ahead and start
foreclosure and he files for bankruptcy, how will that affect the
foreclosure proceedings. Will I get the property returned to me if I
want it, or will some installment payment plan be foisted on me and he
keeps the property? How long can this drag on?
Speaking generaly (as we must becuase of the parenthetically-indicated
questions whose answers would importantly affect the outcome in actuality),
a bankruptcy filing will stop a foreclosure lawsuit dead in its track, at
least initially.
Relatedly, the "how long" question will be affected, initially, by the
location of the property (which the poster doesn't say), by how quickly he
proceeds (assuming he should proceed) in the state foreclosure suit, and by
the state court's general practices in such cases (which can have a few
procedural niceties that, especially if not attended to, can slow matters
down considerably). The point here is that Deadbeat will have no impetus
for speed and may in effect compel the poster to proceed with the
foreclosure lawsuit as Deadbeat tries to delay it, since Deadbeat need not
(though he may, but probably will not) resort to bankruptcy merely because
the poster commences a foreclosure suit.
(Meanwhile of course, the extent to which the poster has leverage depends
on another of the parenthetical questions, i.e., where on the chain of
priority his mortgage stands.)
In any event, suppose it takes from four to eight months for a "normal"
state bankruptcy proceeding to proceed to judgment of foreclosure.
Nonetheless, many debtors can, if with very little required cleverness try
to stretch out this procedure (though, conversely, the aggressive creditor
can parry).
One therefore needs to read very carefully the various interim steps
provided for in the mortgage which might, over possible resistance, be
invoked (e.g., intercepting rent payments, imposing use and occupancy
payments, appointing a receiver, sometimes even possibly pre-foreclosure
judgment possession, etc., etc.) but all of which cost $$ to seek, so that
the scope of the mortgage's attorneys-fees/expense-recoupment clauses and
of course the value of the property also come into play.
But whatever the period and whatever the interim procedural/substantive
issues/relief, the debtor need not resort to bankruptcy until after a
judgment of foreclosure is entered and still more time passes (each state
has some form of predicate notice and related requirements as a preface to
an actual foreclosure sale) which, because of such notice and other
procedural requirements, can take from one to four more months (or longer,
if the debtor does various things various debtors do, variously).
Comes the eve of sale and the poster presumably learns Deadbeat has filed
in bankruptcy court -- whereupon other of the above parenthetical questions
still need to be answered, in particular whwther Deadbeat is owner occupant
of property as his principal residence and poster as residential first
mortgage lender or purchase money holder, or other?
As the poster seems implicitly to know, there is indeed an array of
options to the bankrupt to be, including now the ever popular Ch. 13
procedure for wage earners or othesr with a regular income who wish to
retain their residential property (but also other property, depending) from
the hands of creditors and which, yes indeed, do result in an installment
payment plan (of a comparatively short duration but which can indeed end up
with, in effect (the controversial result) of unscrambling the by now well
scrambled egg by reinstating (with some limitations) the mortgage).
Which requires confronting som potentially critically important basics,
which, because they are in a sense obvious, are the most frequently
overlooked questions:
Is Deadbeat genuinely entitled to apply for bankruptcy relief? Would he
be lying if he seeks relief under one of the provisions which require
establishing his insolvency, since maybe he ain't insolvent? What does the
poster know about how many cars, boats, etc., etc. Deadbeat actually owns
but may forget fully to list and describe in his schedule of assets?
Respecting Ch. 13 procedure, is he really a person with that required
regular income? (It is one thing to be a fifteen year salaried employee of
a Fortune500 company and quite another to be, say, a "consultant" with no
office and no steady income. Thus, in sum, even of his petition/schedules
say he is entitled to relief, are these statements complete and true or
provably false in important respects?) This is no aside, since the
dismissal of a such proceeding might cut Deadbeat off at the courthouse
door and, as well, had Deadbeat have to pay for your having to have made
the motion resulting in such relief.
Unless, therefore, one can at the least made educated guesses about the
probable and also the provable answers these latter questions, the balance
of the questions he asks can't be meaningfully answered either.
The poster thus needs to return to the newsgroup and repost a clarified
question after he has thought about and answered for himself what the
probable answers are to the foregoing questions.