Filed BK to stall trustee sale, now need to undo it...

[justbroke]

That timeline assumes a few things that are not true in all states. One, in most states, if you file right before the foreclosure date, the lender typically does not need to re-notice the foreclosure, they will simply reset the sale date at the next available date.

Exactly the case in North Carolina, with an additional caveat!

Specifically (and this is just for the sake of going further), N.C.G.S. 45-21.22 allows the sale to continue on the same scheduled day, without re-notification, if the stay is lifted (by motion or dismissal) before the original sale date passes and the debtor was noticed before the stay was imposed!!!

That's why it's important to understand the underlying State non-bankruptcy law for that particular State.

[MSbklawyer]

In the OP's situation where there is equity in the home, it makes sense. But if the home is upside down, or if the persons is merely clinging to some "hope" of keeping their house, this is not a good move.

Oh I agree, absolutely. The only times I've used this tactic is such as where the homeowner is trying to sell the home, has a buyer lined up, but there is some unavoidable delay, but the bank won't delay the foreclosure sale.

If it's the homeowner's objective to KEEP the property, then a cure of the arrearage can be made through the plan.

[HHM]

So, you can delay the sale by 14+21+17+28 = 80 days. Plus, it usually takes the lender a week or two to get the advertising started again.

That timeline assumes a few things that are not true in all states. One, in most states, if you file right before the foreclosure date, the lender typically does not need to re-notice the foreclosure, they will simply reset the sale date at the next available date. Second, it assumes the mortgage company does not file a Motion for Relief from Stay which can force your hand. But nonetheless, you can do this.

In the OP's situation where there is equity in the home, it makes sense. But if the home is upside down, or if the persons is merely clinging to some "hope" of keeping their house, this is not a good move.

[justbroke]

justbroke- I really am just an agent for the buyer.

I apologize for being abrupt at first. We had a few "swamp" wizards on here lately that were trying to game the system... so perhaps we're getting a little edgy. There are pitfalls in this process. If you filed Chapter 13, then you should be able to get the case dismissed voluntarily. There's work to be done and I hope the seller's attorney is up for this. The timeline is District specific. It shouldn't require a hearing, and if the attorney gets the Trustee to agree, you just file an agreed order to dismiss.

[MSbklawyer]

So, unless the deal is practically ready to go at the time the homeowner filed BK, this strategy is not very effective.

But, you can buy yourself about 30-45 days. However, you increase the costs of sale, since the BK will lead to more fees charged by the bank that must be paid by the sale proceeds.

That's why you wait until the very day before the scheduled sale. In my case, the sale is Wednesday of next week. We'll do credit counseling Monday, then file the Chap. 13 petition on Tuesday. (I've never had the nerve to wait until the day of the sale for fear that the filing system may go down and we won't have time to do it manually.) Then we have 14 days to file all the remaing schedules and the plan. Then we can usually get another 21 days extension to file the schedules. Then, when we miss that deadline, one of two things (or both) happens: Either the court issues a "show cause" order, or the lender files a motion to lift stay. Either way, the hearing is going to be 20 days or so in the future. So 5 days or so before the hearing, we file a motion to dismiss the bankruptcy, which is granted in about 3 days. Then, in Mississippi, the lender has to advertise the date of sale all over again for four consecutive weeks. So, you can delay the sale by 14+21+17+28 = 80 days. Plus, it usually takes the lender a week or two to get the advertising started again.

I agree that it's not something that should be done lightly. But neither should a bank foreclosure on a person's home be done lightly where, with just a little cooperation, the bank could be paid in full.

[HHM]

Using BK to stall a foreclosure to "sell" the house is not really a good strategy. As you discovered, once you file BK, you cannot close the deal because the home is now part of the bankruptcy estate. If the person really needs BK relief, filing and dismissing the case could be problematic for a future filing. There are specific rules about the automatic stay. If you file a BK to stop a foreclosure, let the BK be dismissed, but then need to refile to stop that foreclosure again, you DO NOT get the benefit of the automatic stay (the foreclosure does not get stopped). The other risk is that in most states, once the BK is dismissed, the foreclosure simply picks up where it left off. So, unless the deal is practically ready to go at the time the homeowner filed BK, this strategy is not very effective.

But, you can buy yourself about 30-45 days. However, you increase the costs of sale, since the BK will lead to more fees charged by the bank that must be paid by the sale proceeds.

[MSbklawyer]

.....this was a highly risky move unless you have an extremely knowledgeable attorney like MSbklawyer.

Well now I wouldn't go so far as to say all that . . . but thank you anyway.

But that is very similar to what's happening in my case. The property is on some primo hunting and fishing land. We have some pretty reliable little birdies telling us that the bank pres. wants the property for his own and plans to have a proxy bidder at the foreclosure sale to buy it for a song. That, to me, is where the fraud and the shadiness can be found here. Not in filing a bankruptcy that isn't really needed except to stop the sale for a few weeks.

[StartingOver08]

BTW, just so you understand why the bank is not being cooperative...it IS because the seller has $100k equity and the bank is looking to get their hands on as much of it as they can. The bank would have to return the funds over the existing mortgage and fees, but the bank can throw all kinds of fees into the process and eat away the equity. Obviously, at the F/C sale it is not likely to get market price so it is doubtful there would be any amount of equity returned to the seller. The more equity you have the less flexible the bank will be.....this was a highly risky move unless you have an extremely knowledgeable attorney like MSbklawyer.

[CaliMel]

justbroke- I really am just an agent for the buyer. I would hate to see the seller lose their money when I think that the bank should be working with us, but my motivation for trying to get this information is to help my buyer and keep her from having to start all over again when she is looking forward to her new home.

We are in a very competitive real estate market here, and we spent several months making offers on many properties before getting this one accepted. She's now waited out the eviction of the hostile tenant, thinking all the while that all would be well in the end. Then the seller sprung on us that they had received a trustee sale notice and we had 2 days to try to stop the sale.

The seller sent a package to the loss mitigation department (at their instruction, a week before I was notified of the trustee sale notice), but three times the fax "wasn't received". When I was finally able to reach a competent person, they acknowledged that the paperwork was there, but "incomplete" because the seller didn't have her taxes to send (in storage, apparently...). When I was able to get them to understand that this is an equity sale, not asking for short sale or modification, just time to complete the transaction, silly me, I thought they'd agree. But instead, they quit talking to us altogether because that's not their department. The people they referred us to in the foreclosure department don't ever answer their phones or return calls, so we were dead in the water. And, no, none of this is really my job, as I don't represent the seller, but if I don't help, I'm not really representing my buyer, either!

The seller filed a Chapter 13, so it CAN be dismissed, and I was just able to finally find the documents on the California BK Court website. Now it's just a matter of getting it filed in time, and hopefully getting back the signed order before the next trustee sale date. The 21 days you predict would be REALLY bad, but thanks for trying to give a timeline, which is what I was looking for. And I also appreciate you being thorough in your explanation of the order to compel vs. automatic dismissal. Exactly the type of thing I was worried about, and the information I needed.

The buyer's lender is about to order loan docs for the buyer, so I'm hoping that with loan docs in hand, the foreclosing bank might finally respond and allow the trustee sale to be postponed so we can close it, even if the BK isn't dismissed before the next sale date. I'll be praying the whole way through....

[justbroke]

Thank you for all of your replies.

I just think it's a losing game and that the bankruptcy court was "used" just to forestall. I didn't read in the original post that there was $100K in equity trying to be preserved.

The filing was an emergency "skeleton" petition as you described. What form needs to be filed to request voluntary dismissal?

If you filed a Chapter 7: There is no form because you can not voluntarily dismiss a Chapter 7. If it was only a skeletal filing, you could wait for the court to dismiss it for failure to file the necessary paperwork, but even then, that would be days after your 14 days. (And, the Court is not obligated to dismiss. I have seen cases where the Court, rather than immediately dismiss, filed an Order to Compel instead. I am just trying to be thorough.)

If you filed a Chapter 13: the debtor would file an Application for Voluntary Dismissal. While it is likely to be granted, this still takes days before a Judge will sign the Order. The Application would probably need to have a proposed order with it. The Panel Trustee can object, so it probably takes at least a 21 day notice. The Panel Trustee can force it to a Chapter 7 if they have sufficient cause.

I have searched the court website for forms, but can't seem to find anything that fits. If we wait for the automatic dismissal, that puts us up against the new trustee sale, and I doubt we would get any proof of the dismissal in time to accomplish our closing.

Nope.

Also, if there is anyone out there with experience in California, I'm interested in how long it might take to get a response to the voluntary dismissal, as the title company will need the document from the judge (I think?), not just proof that we filed the request.

Is it Chapter 13 or Chapter 7. You're not getting a voluntary dismissal in a Chapter 7.

Does the seller have equity and that's what you're trying to get for the seller? Or are you truly the buyer's agent only?

[CaliMel]

Thank you for all of your replies. It is quite unfortunate that the bank would not work with us, and forced the owner to use the only available means left to them to gain time needed to sell the property. I have never experienced a situation like this, where the bank won't respond to paperwork sent in, or make any attempt to speak with someone, even if the answer is "no". It is common to delay a trustee sale by a couple weeks or a month in order to allow for a bonafide sale. We already have loan approval for the buyer, so it's not like we're at the beginning of the process and just hoping it will go through. The bank just wants to push forward with the sale regardless of any extenuating circumstances, effectively taking almost $100,000 from the owner in the process (and leaving my buyer out in the cold after paying for appraisal, home inspection, and waiting 6 weeks for a hostile tenant to be evicted so we could proceed with the lender-required repairs).

My question related not to any fraudulent nature of the owner's bankruptcy filing, but the method for dealing with the existence of the bankruptcy now that it is already in place. MSbklawyer, I would sure appreciate your input on this, as you obviously understand the technique used and the intent behind it. I realize things might be different from CA to MS, but the process for requesting dismissal, or the process if nothing additional is filed, is probably similar. The filing was an emergency "skeleton" petition as you described. What form needs to be filed to request voluntary dismissal? I have searched the court website for forms, but can't seem to find anything that fits. If we wait for the automatic dismissal, that puts us up against the new trustee sale, and I doubt we would get any proof of the dismissal in time to accomplish our closing.

Also, if there is anyone out there with experience in California, I'm interested in how long it might take to get a response to the voluntary dismissal, as the title company will need the document from the judge (I think?), not just proof that we filed the request.

Thanks again! I am in deep water with this, and don't want to let my client down. The market here is very competitive, and she's already considered this place her new home. I sure don't want her to have to start over.

[justbroke]

Fraud? Shady? God, y'all are are scaring me. I do this all the time. I never thought of it as fraudulent nor have I ever seen any caselaw that says it's fraudulent.

Well, it's the Broker who is on here posting... not the debtor. That was the shady comment.

I don't think it's wrong to file a skeletal case, but now it backfired on them, and they're trying to figure out how to undo it? I don't think it's a problem anyway if the Automatic Stay is already lifted as to that property.

I know that people do this to forestall foreclosures every single day. I did it myself. I don't understand how this is being worded, with the "buyer's" Broker on here asking questions, and that is what makes it seem... off tilt to me.

If this was organized as a scheme between the Buyer, Seller and Broker, it is fraud.

Maybe I'm thinking like a Florida State Attorney or United States Attorney, but why would someone forestall a foreclosure sale, when they're in Bankruptcy... so they can sell it? When they'd have no liability after the sale anyhow??? Doesn't pass the sniff test for me.

Bueller? Bueller?

[MSbklawyer]

I don't understand the comment on the case being automatically dismissed after 14 days. Not enough information to form any opinion other than... should never have abused the Bankruptcy system to forestall a foreclosure so you could sell the property.

I think what's probably happening JB, is that they are filing an emergency "skeleton" petition. The remaining schedules, forms and 13 plan are due 14 days from the filing. If they are not filed or an extension of time is not granted, the court issues a show cause order why the case should not be dismissed.

Fraud? Shady? God, y'all are are scaring me. I do this all the time. I never thought of it as fraudulent nor have I ever seen any caselaw that says it's fraudulent.

[justbroke]

Yes, the seller made a big oops. I don't understand the comment on the case being automatically dismissed after 14 days. Not enough information to form any opinion other than... should never have abused the Bankruptcy system to forestall a foreclosure so you could sell the property.

Now, if the seller meant to file Bankruptcy on purpose and is really seeking to reorganize, the foreclosure sale is STOPPED anyhow. If the seller was doing this above board, they could have asked the court and trustee for permission to sell the home. The foreclosure sale should have been cancelled anyhow in active bankruptcy. Unless this case was filed many weeks (or months) ago and the lender already filed a Motion for Relief from the Automatic Stay. If so, then the property is not part of the Bankruptcy estate anyhow. So you wouldn't have this bankruptcy "stay" issue. The more I think about this, the more red flags are jumping up.

For the above reasons, this seems very shady to me.

[MSbklawyer]

First it was a mistake to bk to stall. That is a fraudulent action and bk is a Federal Court. Your client must make Motion to the Court with good reason and case law to ask the Court for PERMISSION to dismiss. You just don't walk away from a bankruptcy that has been filed.

I don't think it's fraudulent, Hub. In fact, I am about to do the same thing for a client on Monday morning. He has a BIG chunk of money coming in about 30 days, but his foreclosure sale is scheduled for Wednesday. The bank won't cooperate and give him 30 days to get the money. I'm going to file an emergency chapter 13 for him to stop the foreclosure sale. We'll dismiss the bankruptcy as soon as the money comes in. (A debtor can dismiss a 13 as a matter of right. You have to have good cause to dismiss a 7.) Then he'll pay off his house note with the money and we've thereby saved his home. It's done all the time and I've never seen it be held to be fraudulent.