[WSBARP] Bankruptcy Gurus

[Paul Neumiller]

Hey Everybody And Happy Friday.  Please bear with me on this set of facts.  I am working with a non-profit that sells housing to low-income people with seller financing.  Buyer/Debtor is now in default and there are multiple junior liens to the non-profit's deed of trust amounting to about $100k.  Debtor, who is represented by a legal aid society type attorney, is willing to sign a deed-in-lieu agreement giving the residence back to the non-profit so the non-profit can fix it up and get another deserving family into the residence.  (My deed-in-lieu contains non-merger language so that Creditor can continue with the foreclosure process to foreclose out the junior lienholders.)  Here's the problem, Debtor's attorney tells me that Debtor wants to declare bankruptcy once the "foreclosure procedure is completed."



OK, it seems to me that the non-profit should NOT accept the deed-in-lieu now because it could be set aside as a preferential payment or transaction in the bankruptcy court.  The only reason that the non-profit would accept the deed-in-lieu is to get early possession of the residence so the non-profit can start to repair it and fix it up.  It seems to me that, since the non-profit needs go the full foreclosure route anyway in order to eliminate the junior lienholders, then the non-profit should not accept the deed-in-lieu and avoid the specter of being set aside as a preference.  The non-profit wouldn't get the property early but it may be a "cleaner" transaction.  Is this sound reasoning??  Can a fully completed foreclosure get set aside as a preference?  Thanks for your help and drive carefully out there.



-Paul Neumiller




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