Sub to and bankruptcy?

[Market_St_Equities]

How does a sub to work if the HO is willing to give up the house but has filled out the paperwork with her atty for BK?

[Jim FL]

Market_St_Equities,
Frankly, I've heard some different views on this from every corner.
Basically, here is my take, and its based on my experience dealing with this issue.

Obviously, i'm not a lawyer, so check with one before doing anything with possible 'legal ramifications.'

With sellers looking to sell, and filing BK at the same time, I'll have them tell their BK attny to not include the house, and do the sale.
Since we are third parties, and as long as the sellers are not letting TONS of equity go that could pay other creditors, (which can be interpreted differently by different people, more on that later), then the sale can go thru, and should not have any issues later.
Some folks scare investors saying things like, "be careful, the BK trustee can do a look back and reverse the sale, causing the investor to lose all."
Sure, they could, but how many times has that happened? I've never seen it.
If someone filing BK sells a house with a mortgage on it 5 years old or newer, chances are there is not enough equity to get the BK court/trustee to care.
Now, if you buy a house for 40% of value, I'd use a lawyer and get things done thru them.
But, 80%, not a problem, at least in my humble experience.

Now, if the sellers deed you the property, later file BK, and include the home loan.......then, here is how I handle it.
KEEP MAKING THE PAYMENTS ON TIME to the lender.
As the BK progresses, you will probably get a letter from the courts as a creditor to the sellers, and I usually pitch those, no need to go for me, the seller owes me nothing.
After the BK is discharged, and this has happened to me MANY TIMES (I actually like this), and the lender has accepted those payments you sent in, the loan remains alive.
The thing is, because the sellers filed BK, and were discharged, and that included the home loan in their name, they are no longer liable for it.
The lenders will even begin to add a line to communications/statements to that effect.
Basically, the lender now has a loan out there, with collateral (the house you bought), and no personal recourse against the sellers credit wise.
Should the loan go into default, the lender can foreclose, and take the house, but it won't effect the sellers, since they are discharged with the BK, including the home loan.
I have several houses where sellers filed BK after I purchased, some as soon as weeks after, some years, and had the loan discharged in the BK.

I love them, low owner occupied rates, and no personal liability on the loans........these are houses I don't mind holding a little longer.

So, what to do, your call, and how comfortable you are with risk.
Ask your attny exactly what the risks are, and then address them and proceed or not.
A seller filing BK or thinking about it should not stop you from buying their house, because it can be done.

and YES, this is contrary to what many 'gurus' are out there teaching.......but like I said, this is based on my own personal experience.

Heck, I live in a house where the seller filed BK 4 weeks after we closed, sub2.
No problems what-so-ever........they were discharged, and I've been in the house for 2 years plus now, with a loan that is secured by the house only.

Pretty cool actually.

HTH,
Jim FL