[WSBARP] Bankruptcy and Real Estate Question

[Kary Krismer]

I haven’t practiced bankruptcy for over 10 years now, but I would assume this would be treated as an executory contract under 11 USC 365.  I vaguely recall an old 9th Circuit case dealing with a real estate contract (the security type document not a real estate purchase and sale contract) which I believe held that type of device was executory.  A purchase and sale contract would be even more likely to be so, absent some change in the Bankruptcy Act I don’t remember, or some new case law. 

If executory under bankruptcy law the trustee could assume or reject the contract, and if assumed the sale could proceed and if rejected you’d have a claim for damages, which most likely would not receive any payment (most estates don’t have any assets to liquidate).  The trustee would only assume the contract if there was something in it for the estate beyond exemptions, or if the debtor gave them something out of their exemptions.  Anyway, I would start with 11 USC 365 and executory contracts.

Not sure exactly how no one would know about a foreclosure.  Apparently neither the listing agent or your client’s agent were looking at title reports.

Kary L. Krismer
John L. Scott/KMS Renton
206 723-2148

From: Scott Hildebrand
Sent: Tuesday, May 30, 2017 9:46 PM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] Bankruptcy and Real Estate Question

A client of mine who had entered into a purchase and sale agreement a month ago, waived inspection contingency and released $5,000 earnest money signed closing papers today. The Seller was to have signed yesterday. Upon returning to his office, he received a message from an attorney that the Seller had filed bankruptcy and that the sale was off. Apparently the Seller is in pre-foreclosure but that fact was not known until very recently (like the last couple of days).

I know that bankruptcy can stop a sale at auction (as a result of foreclosure) but can banko stop a legitimate and voluntary sale?

I would appreciate it if any of you crossover practitioners could help me out on this one.

Thanks in advance.

Best,
Scott Hildebrand
Attorney at Law

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