Selling our rental house before filing

[LostNFound]

Your thoughts?

We are still going to meet with and attorney. Unfortunately, none will talk to me until they meet with us and we are still trying to prepare for what is about to happen.

Anyway, we have 6 rental houses. If we file bankruptcy, we will leave those people without a home at some point. I suppose I should feel bad about that. For the most part, I sort of blame them for the situation I'm in. A couple of the tenants are so far behind on rent, I'd rather set the house on fire (joking of coarse) then to give a crap about where they are going to live.

However, there is an exception of a nice lady that has rented from us for 2 years. She looks like a recovering meth addict (false teeth, thinning hair, old looking). I can tell that life has been hard on her, but she works really hard and always pays us on time. I don't want her to be out on the street and I know she loves the house. So, yesterday, I called her and offered to sell it to her for what we have left to pay on it. I may even lose money at the point of sale. We did a seller carryback and pay the original owners money on the house (not sure if we can get out of that or not). We paid too much for the place compared to what it's worth now so I'm worried that it may not appraise for what we owe anyway.

But I want her to get the loan and house before we lose it. I'm sure I will have to answer to someone, but you would think this would be a good thing, right? It's not like I'm going to try to sell it for less then it's worth.

In my opinion, I'm going to walk away with nothing and if there is money to lose, then the sellers (who sold to us) will also have to take a hit if they want to get rid of it, right?

[backtoschool]

Doing a short sale before a bankruptcy is very common. Then you can put the deficiency in your bk.

If your tenant can get a loan, I think it would be great to sell it to her.

[LostNFound]

But this wouldn't be considered a "short sale" would it? I would contact the bank for that and get approval through them?
What I'm thinking of doing is selling the house to this lady and whatever I'm short (we borrowed about 5K from the sellers themselves), then they will have to also take as a loss? Technically, the bank will get all their money, since they are the first in line on the mortgage. I'm just guessing, of coarse.

[backtoschool]

But this wouldn't be considered a "short sale" would it? I would contact the bank for that and get approval through them?
What I'm thinking of doing is selling the house to this lady and whatever I'm short (we borrowed about 5K from the sellers themselves), then they will have to also take as a loss? Technically, the bank will get all their money, since they are the first in line on the mortgage. I'm just guessing, of coarse.

Who is absorbing the loss in this case? The bank? You? If you sell to your tenant at under market value then it will be considered a preferential transfer. If you are just selling the house to anyone at under market value to avoid foreclosure (with the bank's approval) then it is a short sale. If you are selling the house at market value to your tenant and the bank is getting market value, then it is just a case of selling the house before it forecloses and that is fine.

[nerves]

If the $5000 is not a secured debt, I don't think you will have problems with the sale.
If it is secured, that may create some issues.

[LostNFound]

I'm not sure if it's secured or not. I'm thinking it was like a promisary note or something? But if we file, they will be out everything anyway. I guess I have to wait and see what happens, but there are so many things to think about with bankruptcy...6 months prior....3-4 months during....3 months after...and sometimes 2 years before...aggghhhh...I'm trying so hard not to screw up things for us....it's been a tough year.

[OhioFiler]

Absolutely do not sell the house to anyone you know for less than current market value. The transaction will come back to haunt both of you.

Let the nice tenant know you are surrendering the house and she is free to live in it rent free until someone evicts her which could be a year or more. She can also negotiate purchasing the home from the creditor herself.

[LostNFound]

What if I'm not actually handling the sale of the house? I have a realtor that is working with us on trying to sell 2 other properties. I asked if he would help with this and he said he would. SO there will be fair market analysis done on it. I wouldn't sell it for less then it's worth. But I wouldn't try to mark it up to make money off her either. Honestly, I think we will be lucky to sell it for close to what we paid. I can thank the economy for that. The other thing is that we have offered to sell ALL of our properties to the tenants (we did that several months ago). Like I said, this one is the only one that I worry about. I know she loves the house and she strikes me as the kind of person that probably didn't get many good breaks in her life.

I hate the thought of telling someone that they can stay until someone asks them to leave. I know it's part of the process. Obviously, I'm going to need to get a backbone through some of this or we will never make it through Bankruptcy.

[OhioFiler]

What if I'm not actually handling the sale of the house? I have a realtor that is working with us on trying to sell 2 other properties. I asked if he would help with this and he said he would. SO there will be fair market analysis done on it. I wouldn't sell it for less then it's worth. But I wouldn't try to mark it up to make money off her either. Honestly, I think we will be lucky to sell it for close to what we paid. I can thank the economy for that. The other thing is that we have offered to sell ALL of our properties to the tenants (we did that several months ago). Like I said, this one is the only one that I worry about. I know she loves the house and she strikes me as the kind of person that probably didn't get many good breaks in her life.

I hate the thought of telling someone that they can stay until someone asks them to leave. I know it's part of the process. Obviously, I'm going to need to get a backbone through some of this or we will never make it through Bankruptcy.

It's all in your perspective of things. Stop seeing yourselves as failures and accept you took a risk that didn't pan out, just like Donald Trump did before you. You also can't rescue the whole world. Your good tenets will survive. The ones who weren't so good, good riddance.

[backtoschool]

What if I'm not actually handling the sale of the house? I have a realtor that is working with us on trying to sell 2 other properties. I asked if he would help with this and he said he would. SO there will be fair market analysis done on it. I wouldn't sell it for less then it's worth. But I wouldn't try to mark it up to make money off her either. Honestly, I think we will be lucky to sell it for close to what we paid. I can thank the economy for that. The other thing is that we have offered to sell ALL of our properties to the tenants (we did that several months ago). Like I said, this one is the only one that I worry about. I know she loves the house and she strikes me as the kind of person that probably didn't get many good breaks in her life.

I hate the thought of telling someone that they can stay until someone asks them to leave. I know it's part of the process. Obviously, I'm going to need to get a backbone through some of this or we will never make it through Bankruptcy.

I just want to make sure that your compassion for your tenant does not get punished by a preferential transfer in your bk. It is absolutely imperative that the house gets sold for market value in order to avoid this. She will be the one the trustee goes after, and I am sure you do not want that.

[keepmine]

I'd agree with the others.
You have your own problems to deal with. Don't take on issues that are none of your concern.

[Snickers]

Let the nice tenant know you are surrendering the house and she is free to live in it rent free until someone evicts her which could be a year or more. She can also negotiate purchasing the home from the creditor herself.

My niece is doing that right now. She rents the first floor of a home in foreclosure. The landlord told her to stop making rent payments and just stay there until she gets a knock or notice on the door. She packed and moved most of her stuff to her parents house in case of short notice, but it has been about 3 months free rent so far.

Maybe your tenant could do the same thing. Save up the money and buy the house on the courthouse steps. If not, at least she would be able to save a couple months rent for the security deposit on another place.

But in reality, a place to live is her problem to solve...

[frogger]

Absolutely do not sell the house to anyone you know for less than current market value. The transaction will come back to haunt both of you.

Make sure that you heed this advice.

[LostNFound]

VERY good points everyone. Your right. I can't save the world and I have viewed us as failures. I guess my attitude does need to change. My husband tried to take on the full ownership of getting us into this mess and I told him I didn't blame him. We made these decisions together and it failed. So what. We have each other and that's what matters. I meant those things. Yet, as I read my posts again, I notice that I am playing the "poor me" role and have a negative opinion of our situation. Thanks for making me see the light.

We find out tomorrow if the lady can get the loan for our rental house. Our realtor will do the paperwork and I will make sure that it's sold for market value.

Seriously, I've waiting 4 days (called every day) to talk to this attorney and he will NOT call me back. He is also a trustee so he would know what we should and should not do. Maybe that's a bad thing? I dunno. I just wish I had someone to ask these questions BEFORE we file bankruptcy.