[WSBARP] Bankruptcy Gurus

Fri Feb 23 15:21:36 PST 2018

Ex-con Debtor (embezzlement from two employers) and ex-husband (failing construction company) are overwhelmed by life, are both on title, and can't agree on anything.  That's why I'm concerned if a bankruptcy trustee gets involved.  If we did a deed-in-lieu, we may have to answer questions regarding excess equity even though we could argue that we could have just foreclosed anyway (but who wants to have to make that argument).  I realize you didn't have the extra facts but that is why I felt proceeding with a straight foreclosure would be the way to go because it would be cleaner.  If Debtor filed for bankruptcy before we completed the foreclosure process, then we would petition the court for relief from the stay based on being a secured party.   That seemed to be a "known entity" to me (who does not practice bankruptcy law) rather than roll the dice and deal with a trustee who may try to set aside my deed-in-lieu as a preference.    AND, being a non-profit in the business of providing housing to needy families, non-profit, if it had it's druthers, rather see the residence go to another needy family rather than see the residence listed on the open market.

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From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Marcus Fry
Sent: Friday, February 23, 2018 3:01 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Bankruptcy Gurus

That much equity?  Given those facts, while the foreclosure is pending, why don't you encourage Debtor to list it and connect Debtor to a realtor who will aggressively market it and sell it?

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
Confidentiality: This e-mail transmission may contain information which is protected by attorney-client, work product and/or other privileges.  If you are not the intended recipient, you are hereby notified that any disclosure, or taking of any action in reliance on the contents, is strictly prohibited.  If you have received this transmission in error, please contact us immediately and return the e-mail to us by choosing Reply (or the corresponding function on your e-mail system) and then deleting the e-mail.

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Paul Neumiller
Sent: Friday, February 23, 2018 2:41 PM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] Bankruptcy Gurus

Ahhhh, now we are wading into the tall weeds.  These are all good points but there are additional facts.  Debtor has been incarcerated for the past two years and Debtor's ex-boyfriend is living in the house and is cooperative.  Non-profit has been inside and it's in OK shape.  Debtor doesn't want to pack and vacate for at least 45 days anyway so the non-profit would get only about 45 to 60 days early possession (we have already served the Notice of Default and it's time to serve the Notice of Trustee Sale and Notice of Foreclosure).  With this debt, delinquent HOA fees, all of the junior lienholders, delinquent taxes for two years, etc., Debtor is a bit overwhelmed BUT there probably is some equity, say $50k to $75k.

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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Marcus Fry
Sent: Friday, February 23, 2018 2:00 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] Bankruptcy Gurus

Paul:
I respectfully disagree.  I would take the deed-in-lieu.  Possession is paramount in many of these cases to protect the security.  You should always be glad to get the debtor out of the property because if they no longer see the home as investment, they are not going to care to keep it up.  If debtor later files for bankruptcy and someone tries to set it aside, then just deal with it then.  I should note that I doubt the trustee or anyone else for that matter will seek to set aside the transfer if there isn't any equity in the property.

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
P.O. Box 1689
Yakima, Washington  98907
Telephone:  (509) 248-7220
Facsimile:  (509) 575-1883

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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of nestor at pplsweb.com<mailto:nestor at pplsweb.com>
Sent: Friday, February 23, 2018 1:39 PM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] Bankruptcy Gurus

I agree with you. I never heard of a completed foreclosure being set aside a preference since it is involuntary transfer. I would continue with the foreclosure and forget the deed-in-lieu since you need to take out the subordinate lien holders anyways.  Even though you are a secured creditor with a priority interest, I would avoid getting dragged into Bankruptcy court on this issue. If they file bankruptcy at this point in time you are still getting dragged in, but it should be less complicated to get a relief from stay and proceed with foreclosure.

My two cents worth for a Friday.

Nestor Gorfinkel, Attorney at Law
Licensed in Washington & Florida
Florida Civil-Law (International) Notary

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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Paul Neumiller
Sent: Friday, February 23, 2018 1:10 PM
To: wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] Bankruptcy Gurus

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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