What happens if you wrap a subject-to to an end buyer and the original seller files bankruptcy?
Find out Lou’s answer by watching this short video
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Benefits of Trusts You Cannot Get With ANY Other Entity
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What happens if you wrap a sub two to an end buyer and the original seller files bankruptcy?
If you’ve been in this business for over 40 years, there’s some things that you’ve learned. And that’s me, I’ve been in this game for a long time. And one of the things I’ve found, and that certainly happened to me early in the game. And it was like deer in the headlights. What do I do? I’m responsible. And I’ve been paying on this mortgage. And now my seller has filed bankruptcy. Is that going to infect or affect me? The answer is Matt, not at all. So, when they filed bankruptcy, as long as we can show that, Hey, we were a third-party arm’s length transaction. We’re not their brother-in-law, we’re not somebody that is involved in helping them to avoid the have their cake and eat it too. Suppose in terms of what somebody might be doing in a bankruptcy.
All the bankruptcy trustee wants to see is that it’s an arm’s length transaction, and that you are continuing to make the payments, because after all that is the bankruptcy trustee’s responsibility is to have the creditors made whole if possible, if not, then to have the creditors, get whatever is left in the liquidation process, their piece of the pie. Well, good news. Yours is not part of that, even though your property would be named in, and that loan particularly, would be named in the bankruptcy. That doesn’t do anything to you because here’s what happens. A bankruptcy divorces the person’s debt from themselves. That doesn’t mean the debt goes away. That means the debt is divorced from the individual that borrowed in the first place. The debt stays with the house. So if you are making the payments on that debt, not a problem, no harm, no foul. The lender is not damaged in any way. In that fact, the lender is enhanced with your involvement in the transaction and making the payments.