Why Won't Trustee Abandon the Property?

[SleepWellNow]

Does anyone know why a Trustee wouldn't abandon a property in a no-asset Chapter 7 BK? My friend has a rental property that is about $130K upside-down. She has already received her discharge. The first lender was granted a Motion for Relief of Stay and approved a short sale. The second is waiting on the Trustee to abandon the property. He refuses to do so.

I thought property was abandoned early on in the BK if there was no money to be distributed to other creditors. Can it be the Trustee is holding on to it because he is collecting rent ($2,500) every month and gets to keep a percentage of it? He has been holding on to the rent money which threw the house into foreclosue. A Notice of Default was filed 3 months ago. The house is heading to be auctioned. Sounds kind of crazy to me.

[MSbklawyer]

Does anyone know why a Trustee wouldn't abandon a property in a no-asset Chapter 7 BK? My friend has a rental property that is about $130K upside-down. She has already received her discharge. The first lender was granted a Motion for Relief of Stay and approved a short sale. The second is waiting on the Trustee to abandon the property. He refuses to do so.

I thought property was abandoned early on in the BK if there was no money to be distributed to other creditors. Can it be the Trustee is holding on to it because he is collecting rent ($2,500) every month and gets to keep a percentage of it? He has been holding on to the rent money which threw the house into foreclosue. A Notice of Default was filed 3 months ago. The house is heading to be auctioned. Sounds kind of crazy to me.

Does it have positive cash flow? That's possible even if it's upside down. In other words, after the bank note, maintenance, utilities, insurance &c., is there money left over from the rents?

[AngelinaCatHub]

Sounds like you have a Trustee that's a putts. Does not sound legal to me as he is holding property that until it is repo-ed belongs to you. 'Hub

[SleepWellNow]

MSbklawyer: No, it does not have postive cash flow. I think it is several hundred dollars a month in the negative. The Trustee also told her agent to send all the short sale information to him and he would take over the sale. But, the short sale was ALREADY approved by the lender. It sounds to me like the Trustee is looking out for HIS best interest and wants to make some money here. He's already making his percentage off the rental income. The longer he holds on to the property, the more money he is making, right?


One more thing, her listing agent was informed the Trustee will immediately abandon the property if some money is "carved out" for the benefit of the estate. Otherwise, he will keep looking for any possible money from the sale for the estate. What money? The house is a Short Sale and there IS no money to be "carved out" for him. Everyone who hears about this says it sounds like a solicitation for a bribe. Would a Trustee be so bold as to do that? Who watches over these Trustees and makes sure they are not operating "out of bounds"?

My friend is a nervous wreck. I wish I could tell her what to do but this is so bazaar, I have no idea what to tell her.

[tdawg]

I have a similar situation going on

I filed ch 7 in November. At the 341, the trustee asked me for a phone number that he could have someone call me at to appraise my house. I am current on my loan and it is worth less than I owe on it. The trustee hired a real estate agent to list the house. I haven't heard anything from him about whether I need to move, pay him rent, or anything like that. I figure I won't have to pay the mortgage in the mean time. I'm going to talk to my lawyer Monday, but this just seems pretty weird. From everything that I've read, if the house has negative equity, the trustee abandons it. But it doesn't seem to be the case.

[SleepWellNow]

Wow. That does sound strange. Is this your primary residence? Was the appraisal done? I wonder if the Real Estate agent did a BPO (Broker's Price Opinion) and came in with a high value just to get a lising. Please post after your meeting with your attorney. I'm very interested in knowing what the reasoning is behind forcing the sale of a property where there is no financial benefit to the bankruptcy estate.

BTW - A Notice of Trustee Sale was recorded yesterday on my friend's house. The Trustee has held on to the house for so long, it looks like it will now go to foreclosure instead of being sold as a Short Sale. I just don't get the Trustee's reasoning.

[justbroke]

There is no compulsory need for a Trustee to abandon an interest of the Estate. As a matter of fact, and I just learned this, unless and until the Trustee files a Final Report of No Distribution, Abandons Property, and/or the case is closed, the Automatic Stay remains as to property of the Estate (as scheduled). This is, presumably, so that the Trustee can properly administer the assets of the Estate without having to rush to do these things, as some things... such as title defects... take time. Should be interesting as it plays out.

You could always file a Motion to Compel Abandonment if you feel it's fruitless for the Trustee to hold the property.

Unfortunately, this is just how it works. The Trustee is trying to make money for the Creditor and himself. If he makes no money... he wasted his money and time.

[dspii]

If the trustee has taken over the sale of the property and they were collecting rent, this was not a no-asset case, hence the property remains part of the estate until it is closed. As Justbroke said, they would have received a report of no distribution...which means no assets and no money to distribute. By the sounds of it, the estate does and will (after the sale) have money to distribute.

[SleepWellNow]

Justbroke - Very interesting information. Thank you. Regarding the stay remaining in place, the first lender (the one who approved the short sale) was granted a Motion for Relief of Stay. Would that change things?

dspii - Maybe I am seeing things wrong here. The rent is $2500 a month and is sent to the Trustee. The mortgage payment on the first alone is $2600. The second is $400. Then there are taxes, insurance, maintenance. The house is upside-down about $130K. Where are the assets to be distributed? The first lender is going to get less once the Trustee sends the collected rent payments to them (minus his cut) than if he would of let the short sale go through. The second is getting nothing from the Trustee but was going to get money from the first in the short sale. Now that he's letting the house foreclose, it is going to cost the first lender upwards to $50K. The only one coming out on top is the Trustee.

[dspii]

dspii - Maybe I am seeing things wrong here. The rent is $2500 a month and is sent to the Trustee. The mortgage payment on the first alone is $2600. The second is $400. Then there are taxes, insurance, maintenance. The house is upside-down about $130K. Where are the assets to be distributed? The first lender is going to get less once the Trustee sends the collected rent payments to them (minus his cut) than if he would of let the short sale go through. The second is getting nothing from the Trustee but was going to get money from the first in the short sale. Now that he's letting the house foreclose, it is going to cost the first lender upwards to $50K. The only one coming out on top is the Trustee.

Well there's the catch, the bank note is against the real property not the rent. I think the money collected from the rent is being used to pay off your unsecured creditors not the mortgage or taxes, hence they foreclosed due to nonpayment. The house is being foreclosed on, the stay lifted, and the bank will auction the property and use the money to pay the note. The first and second mortgage companies will battle for the proceeds. You are free and clear from any unpaid amounts after the house sells.

[tdawg]

Well there's the catch, the bank note is against the real property not the rent. The money collected from the rent is being used to pay off your unsecured creditors. The house is being foreclosed on, the bank will auction and use the money to pay the note. The first and second mortgage companies will battle for the proceeds. You are free and clear from any unpaid amounts after the house sells.

So, the trustee can rob from one creditor (the mortgage company) and give it to other creditors (unsecured creditors)? And in the middle, take his cut. That doesn't seem right.

[SleepWellNow]

I was thinking all along the Trustee was holding the rent payments, then he would take his cut and send the rest to the lender. If the Trustees are going to disburse the rent money to unsecured creditors, maybe the lenders should enforce the "Assignment of Rents" clause if it's in the Deed of Trust and have the renters send the rent payments directly to them and bypass the Trustee.

Thank you dspii. Very interesting.

[StartingOver08]

Remember the assignment of rents rider is typically in a mortgage rider for investment properties only. If the property was originally a primary residence, would there have been an Assignment of Rent Rider? I don't think so. Maybe that's why the Trustee is keeping the funds to disburse to other creditors. BUT, I thought that the funds get disbursed according to a hierarchy (admistrative, priority, secured, unsecured).

This is getting very interesting.

[SleepWellNow]

StartingOver08 - The house was her primary residence but, when her job was transferred to another state, she couldn't sell it in the declining market and had to rent it out. I looked over her Deed of Trust and the Assignment of Rents is made part of the Deed. It is not a rider. Maybe this lender was covering their bases in case a primary property ever turned into a rental.

But, its the lender's case to argue with the Trustee and I think the lenders are so caught up with foreclosures and short sales, it is small potatoes to go after rent. And...I'm sure the Trustees know that.

I hope the money the Trustee collected on the rent IS distributed in the order you mentioned. She has a rather large IRS debt too. It would be nice to get that lowered!

[justbroke]

Justbroke - Very interesting information. Thank you. Regarding the stay remaining in place, the first lender (the one who approved the short sale) was granted a Motion for Relief of Stay. Would that change things?

There's the rub and I think this exposes what the Trustee is doing. They are collecting rent until the first lender actually forecloses. This could take a long time to actually approve and execute/close a short sale!