What Happens if the Home Seller Declares Bankruptcy Before Giving the Buyer Possession?
February 22, 2008
Many real estate investors will purchase a house and allow the seller to stay in the home for a short time after the sale of the home is completed. But doing this could come back to bite them. Here’s one example of why you should always take possession at closing.
Recently we had a client who purchased a home and gave the seller 30 days to stay in the home after closing. When the Friday came that the seller was supposed to move out he told the new owner that he needed a couple of more days to allow himself to find a new place to live. (The fact that he had already been allowed 30+ days to search for a new home already and had not done so should have rang some warning bells.) Although he was anxious to take possesion of the home my client was generous and allowed him to stay through the weekend.
Monday rolls around it there seems to be no sign of moving vans, and seller will not answer his phone. A visit to the home finds the seller not wanting to be “bothered” by the new owner. Fast forward to Friday and the seller still hasn’t moved and is now not wanting to go anywhere.
It seems that now would be the time to take measures for an unlawful detainer action as discussed in my previous post. However, in this case their is a wrinkle. The seller has just declared bankruptcy.
When a person declares bankruptcy that means that there is an automatic stay granted him against any suits being brought forth? In plain english this means you can’t go to court and try to evict him with an unlawful detainer action. Instead you have to petition the bankruptcy court to vacate the stay in order to allow you to bring forth the action for unlawful detainer.
Because of this the likely outcome is that the seller will be given several weeks to a month or more of free housing while you petition the bankruptcy court and attempt to evict him for unlawful detainer. This is going to cost you possibly thousands in attorneys fees and lost rent. And there’s little likelihood that you’ll ever recover anything from the seller even if the court finds in your favor for fees and lost rent because you’ll be in the back of the line behind all of his other creditors.
Your only other option is to sit and hope that seller will move out of the house.
Again I reiterate. You should always take possession of a house at closing!
‘before’bankruptcy house seller’separator’holdover seller’separator’tn real estate lawyer’separator’unlawful detainer‘after’What do you do if you find yourself in this situation?
- Hope that the seller is actually going to move out soon and just wait.
- Go forward with legal action.
Comments
2 Responses to “What Happens if the Home Seller Declares Bankruptcy Before Giving the Buyer Possession?”
Got something to say?
favorited this one, dude
I am in a similar situation except the seller is not residing in the property being sold. We were to close in 2 weeks. How does his filing for bankruptcy before closing effect us the buyers?