Legal Question in Real Estate Law in California

Re: Foreclosure,Bankruptcy & Corrupt Realty Agencies

The filing of a bankruptcy essentially takes away from your friends all authority to sell the house. The judge overseeing the bankruptcy has control, exercised for the most part through the appointed trustee.

When your friends listed their home for sale, did they disclose to the real estate agent that the home was in a Chapter 13? If they didn't, that would be an attempted fraud. If they did, accepting the listing would be an act of incompetence on the part of the agent/broker unless the listing was court-approved.

The basic concept is that the property of people who file for bankruptcy protection is no longer theirs. They may get it back when the bankruptcy is discharged, but during the pendency of the bankruptcy proceedings the house, etc. are part of the so-called 'bankruptcy estate' and can only be sold by the trustee, with court approval.

This situation seems to be a real mess, created in large part by your friends' lack of knowledge about bankruptcy. Are they trying to do this without a lawyer? The stakes seem to be too high to do this without professional help.....maybe a Ch. 7 with few assets is a suitable do-it-yourself project, but where a home and other assets are involved it is not sensible to attempt to wade through bankruptcy without representation. Remember, the lender, the real estate agent, the buyer, the trustee, and the title company all have or will receive advice from their attorneys.

Re: Foreclosure,Bankruptcy & Corrupt Realty Agencies

Dear Mr. Whipple:

I am answering this question upon the assumption that the property in issue is located in California; if not, none of the following information is applicable:

Unfortunately, until the escrow closed on the sale by your friends to the buyer they had found, it was not "sold", despite being in escrow, and the existence of an escrow does nothing to halt a foreclosure. Your message states that they received notice of the foreclosure sale before filing bankruptcy; if the bankruptcy was no longer an impediment at the time of the sale (either because your friends allowed it to be dismissed, or because the foreclosing lender obtained relief from stay from the bankpruptcy court)that notice of sale previously received by them was sufficient (actually, there is first a notice of default and then a notice of sale).

Having to get a judge to demand that their mortgage company "release the balance" of the loan does not make sense. Probably, your friends mean that they were trying to get court approval of the sale. If the bankruptcy was still in force at the time of the foreclosure, it was an invalid foreclosure. Assuming the bankruptcy was either dismissed or there was relief from stay granted to the foreclosing lender, the lender now owns the house and your friends cannot sell it to anyone. Further, they will have to vacate the house at some point, and the lender can evict them if they do not.

Generally, neither escrow nor the title company are required to disclose information regarding the status of a third party's foreclosure efforts.

Unfortunately, had they obtained legal advice prior to the foreclosure there were methods to assist your friends in halting the foreclosure; at this time, unless the bankruptcy was still a bar, there is little that can be done.