[WSBARP] effect of bankruptcy of heir on trustee's sale

[Kary Krismer]

I think that's the correct real estate law answer, but I'm not sure it's 
the correct bankruptcy law answer.  I would look to someone who has 
practiced bankruptcy law more recently than me, for I haven't even 
practiced under the current Bankruptcy Act enacted some 15 years ago.

But my concerns are:

1.  Chapter 7 bankruptcy isn't typically that good of a solution for 
non-judicial foreclosures, unless the trustee takes an interest in the 
property and wants to sell.  The stay will terminate fairly quickly, 
particularly if the case is considered a single-asset real estate case, 
and/or the creditor could move to have the property abandoned by the 
bankruptcy trustee.   Chapter 13 could have it's own issues, but is 
generally better suited to dealing with foreclosures.

2.  During most of the time the Chapter 7 is open it would be the 
trustee that would likely call the shots on selling, assuming a 
trustee's interest in selling the property. The net proceeds of sale 
would be subject to both the creditors of the deceased and the creditor 
claims of the heir filing for bankruptcy.

3.  There's an obvious adverse impact on whichever heir files the 
bankruptcy case.

4.  Claiming any kind of exemption in the property may deter the trustee 
from administering the property, leading to the concerns expressed in 
paragraph 1.  Also consider the impact of the new homestead law if that 
is enacted.

5.  Technically the mortgage creditor might be able proceed to foreclose 
the interest of the non-debtor heir, since that interest is not property 
of the estate in a Chapter 7.  I doubt that would happen, but it would 
be very problematic if it did.

Some thoughts unrelated to bankruptcy.

1.  I'm a bit surprised that a deed of trust trustee would not be 
willing to delay their foreclosure process if there was clearly 
sufficient equity and if a good effort were being made to sell the 
property, particularly if the estate is in probate.  I'm not aware of 
any basis for the probate court to stay their actions, but I'd consider 
that possibility.

2.  There might be some difficulty getting payoff information from the 
creditor given their debtor has passed away.  I assume they are 
responsive to requests by probate administrators, but that issue can 
hold up a non-forced sale.  I had a situation a couple of years ago 
where my seller who obtained title by a foreclosure of their own had 
difficulty getting a payoff for their sale transaction.

Kary L. Krismer
John L. Scott, Inc.
206 723-2148

On 3/25/2021 10:44 AM, Rod Harmon wrote:
> Yes.  Property vested in the heirs at the death of the intestate, subject to creditors' claims in probate.
>
> Rod Harmon
>   
> RODNEY T. HARMON
>         Attorney at Law
>           P.O. Box 1066
>        Bothell, WA   98041
>       Tel:   (425) 402-7800
>       Fax:  (425) 458-9096
>      www.rodharmon.com
>     rodharmon at msn.com
>
>
>
>
> -----Original Message-----
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of Douglas Owens
> Sent: Thursday, March 25, 2021 10:30 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: [WSBARP] effect of bankruptcy of heir on trustee's sale
>
> Dear Listmates, if there are two heirs to an intestate estate and the sole asset is real property that is being foreclosed in a trustee's sale, and the estate is in probate, would the filing for bankruptcy of one of the heirs invoke the automatic stay for the trustee's sale?  Thank you.  Yours truly, Doug Owens
>
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