Don’t lose your contract for deed house

 

A prior post talked about the situation where you are the buyer on a contract for deed, are current, and the seller files bankruptcy.  (Basically the message is:  You’re okay for the term of the contract).

 But what if you are behind on your contract for deed?  Then the situation can be an emergency.   The reason is this:  In Minnesota a contract for deed can be canceled (terminated) by giving a particular notice which gives the buyer 60 days to catch up. (There are a few oddball situations where the timing would be different.)   If you don’t catch up within that 60 days you lose your purchaser’s interest and all the payments you have made and any equity you have built up. 

You say to yourself “The Bankruptcy Code stops foreclosures, so I’ll file bankruptcy.”  Well, it is true that bankruptcies can stop foreclosures, but once the notice of cancellation is correctly served, a “clock” is running.   And bankruptcy won’t stop that clock from running.

The Bankruptcy Code does give an automatic 60-days-from-filing extension on this “clock”, but Bankruptcy Judge Gregory Kishel wrote an opinion several years ago in which he said that the extension was in favor of the bankruptcy trustee, not the person who files the bankruptcy for themselves.   I don’t know how widely that opinion is honored in real life – sellers often just want their money, not the property back-- but it is certainly a concern.

So, what’s the moral?

If you are behind on your contract for deed, we should be talking about filing a chapter 13 bankruptcy BEFORE you are served with a notice of cancellation.  If we file BEFORE the notice is served, then the “clock” isn’t running and we can catch up the missed payments through the chapter 13 plan while you make the current monthly payments directly.  Or, if the financial hardship is temporary, we can file a chapter 7 to get rid of your other debts and you can catch up on the contract for deed yourself during or after the bankruptcy.

 As always, there are exceptions and exceptions to exceptions, so if this post applies to you, give me a call at 320-252-4473 and we can discuss it.

Oh no, my contract for deed seller filed bankruptcy

 

Since mortgage rates seem to be on their way up, we may run into more folks buying their home on a contract for deed.  In case you don’t know, a contract for deed is a device under which you agree to pay the purchase price to the owner of the house over time instead of getting a mortgage and paying the seller with that loan.  (Some states refer to this as an installment land contract.)   Contracts for deed often have relatively small down payments, monthly payments that are largely interest only, and must be paid off in (balloon) in three to five years. 

So, let’s say you bought your home that way.  And today you got a “Notice of Official Proceeding in Bankruptcy Court” in the mail.  You open the letter, wondering what’s up, and find out that the person who sold you the house filed their own bankruptcy.

In the words of Douglas Adams:  “DON’T PANIC”.

If you live in the property, and if you stay current on the contract for deed (payments, insurance, taxes, etc.) then your contract for deed cannot be terminated by the seller just because he or she filed bankruptcy. (Bankruptcy Code Section 365(i) )   Now, the person to whom you owe the money may change because your seller may “lose” the contract to their bankruptcy trustee.  That means that the trustee will collect the payments instead of your seller, and if so the trustee merely has to deliver title when the contract for deed is paid off.  This may open up a chance for you to get a discount on your contract for deed.  If it runs several more years, and if you can get a mortgage, you can negotiate with the trustee to pay off the $100,000 balance for, say, $90,000 or less.  Since a trustee has to liquidate things fairly quickly, the trustee might take a reduced payoff to be able to close the case. 

So, the important thing for you as a contract for deed buyer is to stay current.  Then, as a bankruptcy attorney, I suggest you consult an attorney (!) to figure out what the heck is happening.

NOTE:  This is a situation where the seller files bankruptcy.  This is not discussing what happens when the buyer is in default and the seller has served a notice of termination.

As with most things legal, there are nuances here.  That’s why I am happy to talk to you about your particular situation.  Give me a call at 320-252-4473

Completely off topic post

 I usually post about bankruptcy issues, once in a while about estate planning or real estate.  This post has nothing to do with bankruptcy.

Back in February I listened to a program of Science Friday on MPR and the subject of the program was brain donation.  I did not know such a thing existed.  It turns out that the National Institutes of Health has a program called the NIH NeuroBioBank.  That program takes the brain from a deceased person and sends it for study.  The idea is to compare the brain tissue of people who die from Alzheimers or other brain-type diseases against the brain tissue of people who die from other causes -- so to speak "normal" brains.

I was so intrigued by the idea of helping people after my death that I signed up.  I hope that when I (eventually!) die that I have a "normal brain" and that it can be used to look for differences that may help cure or prevent Alzheimers or some other terrible disease.   I have at least one relative who was descending into dementia when they died -- it was so sad to see them slip away.  If there is anything I can do to prevent that for some other family I think it would be a final good deed on my behalf.

Besides, as many of you have probably already said "Sam, you're already not using your brain".

Below is a clip from the Science Friday program that gives some basic information.

The easiest way to begin the process of registering yourself (or someone else) to become a brain donor is to visit braindonorproject.org and click on the “pre-registration” button in the upper right area of the home page. It is a brief online form that collects contact information and a few other details. You may complete it for yourself or on behalf of someone. Once that online form is submitted, the information will be referred to the appropriate Brain Bank in the NeuroBioBank network. Within ten business days (this time period can be expedited if necessary), a packet of consent and release forms will be sent that needs to be completed, signed and returned in order to be considered a registered donor of that brain bank. You’ll also be given instructions for the family regarding what they need to do at the time of your death. The most important thing is to notify the brain bank within an hour of the donor’s passing, as time is of the essence for the recovery procedure. The body would be transported to a local facility – often this can be the funeral home involved; if not, another mortuary or medical facility is identified. The brain is then retrieved through the back of the head (so as not to be disfiguring) and it is shipped to the brain bank. All of that is at no cost to the family. Once that’s taken place, the body is released to the family to proceed with whatever (funeral or other) arrangements have been made.