Straight from the files of real estate law, bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Our hope in sharing this story is that it will shed some light on the process for others aspiring to have similar endeavors. The process is not without risk, but if done right, the payoff can be big.
Finding the Property
Late last year, we were contacted by a bankruptcy lawyer who was representing a bank trying to foreclose on a specific piece of property where the borrower was in default. The borrower had gone through several bankruptcy tactics and was now delaying foreclosure. Our acquaintance was about to have the stay lifted so they could foreclose on behalf of her small out of town bank. The bank had asked the attorney to find someone who would buy the note and just take over the foreclosure and repossession process for the property.
Getting the Property
In the end, there was an arrangement put in place for a company we owned to buy the note from the bank and take over the bankruptcy process. Although the process was complicated and at times drawn out, we got the automatic stay in bankruptcy which then prevents foreclosures from occurring while someone is in bankruptcy. The automatic stay prevents foreclosures until such a time as the judge allows it. We went through the process, got the judge to approve it, and then received the right to foreclose.
Although the debtor did try to do several things to stop the foreclosure, they were unable to do so. We then got the order to lift the stay and then posted the property for foreclosure. We then conducted a foreclosure sale, where as the holder of the note, we were allowed to credit bids. This enabled us to bid up to the amount of the debt including:
- Unpaid interest
- Attorney’s fees
- Related costs
By that time, with the attorney’s fees, because of the bankruptcy and interest running at a default rate, the balance owed was enough that nobody else bid and we were able to bid and eventually became owners of the property.
As new owners of the property, we had to go through the process of evicting the occupant. The next step was to hire eviction counsel, file the papers and serve them on the property. By having a process server tape the papers to the wall and also send letters to the debtor and the property, it then triggered a thirty-day clock where the occupant had thirty days to leave the property. Fortunately, the occupant called us on the thirtieth day and said they were turning over the property.
Had the occupants not turned over the property within the thirty-day time period, we would have had to go to court and either have them evicted or get a judgement saying the occupant had no right to be on the property. Then, if necessary, a constable would have gone out to the property and physically removed the occupant. Luckily it did not come to that.
Renovating and Selling the Property for Profit
The property was not horrible, but it was definitely not clean either, so we spent several days hauling out trash and then began painting and cleaning and getting ready to put in new floors so the property could go on the market soon.
The project became a family affair as my wife is a real estate agent and helped take on many of the responsibilities of improving the property and staging it in a way that makes it more marketable.
The property is now awaiting a few final touches and inspections before it goes on the market. The endeavor has been a mixture of bankruptcy, real estate law, real estate investment, and real estate marketing. It is an adventure that we are glad we signed on for because although we have helped with legalities of situations like this before, going through it personally has given us a firsthand perspective that will only add to us successfully representing similar cases in the future.