Rental Home question

[deadbroke99]

Background. Tried to sell my house while building my new house in 2006. The house did not sell so an investor agreed to take over payments and find a rent to own buyer and to eventually buy the house after renting from him while building up their credit. Once his buyer is able to buy, the investor gets all the equity in the house (about $20,000). My part in this is just that my mortgage was being paid and I didn't have to worry about it.

Now 2 years later, the investor has went thru several "rent to own buyer's" and noone has completed the process. The investor is making money on this because he is charging rent higher than my mortgage payment. Long story short, the investor transferred his interest in the property to another investor who is now paying late but not late over 30 days. I got a letter in the mail that said due to the economy that they would only be able to pay half of Feb's payment.

This gets to my question. I think I made a mistake by calling them and letting them know of my situation and telling them I am about to file ch 7. My plans are to give the rental house back to the bank during that process. He was upset and said he has a family in that house and that's going to hurt them. I told him that I understood that but he is making my payments late and not paying but half of next months payment and I am broke and can't afford to pay the difference plus I have other financial issues going on that I must file no later than March. I have not talked to an attorney yet.
Investor is going to see if family can qualify for a mortgage now to be able to buy the property before I file. I will not make a dime on this. Will this hurt me in anyway by them buying? I am wondering if I should not have just filed and then told them. I haven't heard back from the investor so my guess is that the family could not get the financing. What are your thoughts?

I am over median but the legal consumer means test says I can file ch 7.

I have to count the mortgage payment they are paying on my tax return as rental income but I can offset the expense by the mortgage interest deduction and taxes and insurance that is paid on the property so on my taxes I actually take a loss. I am just wondering how this will affect my bankruptcy? Help!

[justbroke]

The only thing I will wonder about is how enforceable that contract is and the "assigned" (or sold) rights to the new investor.

The Trustee is going to look at this for sure, to make sure that the Trustee can't get money out of it. If it sells before your case is filed, the Trustee could attempt to void the transfer. This has nothing to do with you and would be between the Trustee and the new owner!

First, let me say that the investor is in default and really has no recourse. Your contract should have stated as such, that a missed payment or late payment is a default. The investor shouldn't be mad at you, because he put this property in jeopardy by continuing to pay late and to miss a payment (even paying half is considered missing the entire payment).

Other than that, this gets into specifics of contract law.

I have to count the mortgage payment they are paying on my tax return as rental income but I can offset the expense by the mortgage interest deduction and taxes and insurance that is paid on the property so on my taxes I actually take a loss. I am just wondering how this will affect my bankruptcy? Help!

As I wrote... I don't think it will affect you personally, but it will affect your bankruptcy estate. This is to the extent that the Trustee wants to get money out of that rental property. I assume it has some decent equity? The Trustee will probably review the contract and the assignment (sale of the rights) and see if the bankruptcy estate can't keep the equity.

If you want nothing to do with the property anymore -- and hence filing bankruptcy -- I don't see any issue regarding you personally.

[StartingOver08]

I think you also have to list this under the executory contracts section of the BK petition and provide a copy of the contract. The Trustee may want copies of whatever documentation you have regarding the payments and/or assignments to the various investors.

I think JustBroke has it right about this being a contract default on the part of the investor. As such the Trustee may regard the property as part of your BK estate and if there is equity, may liquidate the property to obtain the equity. JMO.

[deadbroke99]

Thanks! I feel better now!

There is $20,000 there about equity. I have all the documentation and the letter from the investor saying he would only be paying half of a payment. I am so glad he sent me that!