Lease Option from a person currently in Chapter 13. Please Reply

[mike22]

Just posted a long post and it was lost. Guess that means I was being too long winded so I will keep it shorter and answer questions from those of you willing to help.

We are giving our home back as part of our Chap 7 BK. We are looking for rentals but it has been tough to find something that meets all of our needs so it is time to make even more brutal decisions about pets etc unless....

We found a possible lease option or as the potential sellers and his attorney are calling it now a rent to own. It would be a five year term, paid through contract collections with a signed agreement. The home is a match made in heaven for us and is affordable.

Here is the problem I am struggling with; the seller is in a Chapter 13. I am in over my head knowing if I am just going to put myself into a mess. At first blush that is what I think it would be doing but as I think more about it maybe not. It would be approved by the trustee after the creditors have had a chance to object

Because the payments would cover the mortgage and would be paid through a contract collection we would not run into problems with it falling behind unless we failed. It seems that this may not be a bad deal, at least not as bad as it sounds. (Chapter 7 family buying a home that was going to be surrendered to the bank by a chapter 13 family) or maybe it is.

I am happy to share any of the other details about the structure of the deal but did not want to have a huge post.

Please Help

[mike22]

Anyone pretty please!

[lrprn]

Here is the problem I am struggling with; the seller is in a Chapter 13.

Here are the risks you are taking by signing a rent-to-own contract for a house involved in an active Ch 13:
* What are you going to do if the Ch 13 filers voluntarily dismiss their Ch 13 before you are the legal owners of the house?
* What are you going to do if the 13 filers' trustee dismisses their Ch 13 before you are the legal owners of the house?
* What are you going to do if the 13 filers convert to Ch 7 during their 13, surrender the house, and are still the legal owners of the house?
* What are you going to do if the 13 filers haven't gotten their trustee's prior permission to set up a rent to own contract on their house - an asset which is entangled with their 13?

Each one of these situations puts you at high financial risk and you could find yourselves on the street with very little or no notice and no legal recourse.

You need to set up a half-hour appointment with an experienced bk lawyer and possibly a real estate lawyer as well to have them thoroughly review this lease-to-own contract *before* you sign it and make sure there are clauses included that ensure you are protected if the 13 filers or their trustee dismiss their 13 early or the filers convert to Ch 7 before you legally own the house. You must do everything you can to protect your interests in this risky situation.

What's wrong with asking to rent the house on a month-to-month basis until you can get back on your feet financially after your own Ch 7?

[mike22]

Thank you for the reply. Being that I don't know nearly enough about a chapter 7 let alone a 13 I am nervous but this is a great home, not just house but home that would be a perfect fit for my family, If is was not I would not even consider this whole situation. Having said that as I have thought this through I have tried to keep it as simple as possible. The Sellers motivation and story all make sense to me. We have done some background research on him and everything he has said makes checks out.

His attorney is presenting the basic terms to the Trustee and the Trustee will notify and listen to the creditors and then decide to approve or deny the rent to own. (this is what I have been told and of course will verify that all of this has happened, in writing.)

My plan after was to ask his attorney to draft the agreement and then to have it reviewed before signing it. In the end I think that I am taking a certain amount of risk and I don't take that lightly, but I do believe that it is worth the risk.

Being that you are familiar with a 13 how much risk am I at even if the 13 went away or was converted. If I have a lease/rent with an option in place and payments are current can he evict me? It is unlikely that he will want this home back. He runs a trucking company and the neighbors will not let him bring the big trucks home and his wife does not like the home because he lived there with his ex.

My thoughts on if he converted to a 7 would be that the bank, if paid monthly by me and current would allow the lease to come to a conclusion even if he did not reaffirm. (I may be very wrong).

I asked him directly what if his 13 failed or he converted to a 7 and in both cases he told he had no intention of not finishing the 13 that he makes his payments faithfully and could not convert. People lie I know but I don't get this from him. He is prepared to let the home go back and said that this is his last opportunity to improve his 13 plan and he would sooner the home not go back if he could prevent it.

the home is in great shape and many items are new and updated, he has had it on the market for over 1 year and has not wanted to rent it out because of the risk of it being torn up. At this point he could just choose to rent it to me month to month but is not open to it. He wants to either have someone with "skin in the game" that can improve his situation or he is at a point that he is just going to let it go back to the bank and be out from underneath of it. He told me that he has to make a higher payment to the trustee with this deal in place and does not want to do that if it does not help him.

I am very cautious but my gut tells me that this is a reasonable risk even though it sounds very unusual. I agree I have to do all that I can to protect my family from this situation, but I also want to balance it with providing them with the best situation to live in and this home and property is a match made in heaven for us.

Thanks for your help.