Prove Property Purchased for Investment

[justbroke]

My fellow board members, I told you that I'd come to you during my Chapter 7 for experiences and opinions. So here I go.

My case is now a Chapter 7 that was converted from Chapter 13. In the Chapter 13 context, having a non-consumer filing really doesn't mean anything, but in Chapter 7, it means alot!

So, I purchased the residence I live in now as an investment in 2005. I was living in another Florida city at the time and had no intention to move. As a matter of fact, I owned that home and closed on the home where I live now, without having to sell that prior home. After buying the home and leasing it back to the owner (which was nice), I decide to move into the home shortly thereafter (about 30 days). I also sold my prior home 45 days after I purchased this home I'm in now. I also then turned around 45 days after selling the prior home, and purchased another investment property in another State.

I believe that Florida Bankruptcy Courts go by the intent of the initial purchase as to whether the property was purchased for "personal or family" use. The problem I have is a.) I have lived in this home as my residence for 5 years now, b.) I have homesteaded this property but did not claim the exemption in my Bankruptcy, and c.) UST may see this as a home purchased for "personal or family" use.

I don't have the original closing paperwork. I know that I put money down at purchase time. I intended it to be an investment property. The lender that I used is now defunct.

So... how do you think this is going to happen? I know the Office of the United States Trustee (OUST) is going to attempt to dismiss me since I'm way over median. It would be best if this property is "non-consumer" because it constitutes a big chunk of my debt (as would normally be the case in a consumer case).

I know that several forum members have had non-consumer cases. I also did some research on our OUST and it seems that the Region 21 OUST believes that a "Non-Consumer" case is a safe-harbour for any of the abuse previsions in 11 USC 707(b). So I'm sure he'll attack my debt individually to attempt to make it a consumer case.

[newbie2]

Have you tried contacting the title company (or closing agency) to see if they keep records of the closing? Maybe they would have copies of the original documents that you signed.

I wish you well.

[justbroke]

newbie... thanks! I didn't even think of that. I dont' think the Title agent wants to hear from me. I cost her thousands of dollars! Well, she didn't record the sale of my former home for 32 days. On top of that, she didn't pay my mortgage company or any of the other items that were on the HUD-1.

Apparently, we did a dry closing late (after 6PM) on a Friday, and the buyer's bank was in California, but didn't realize that Wires must be done before 3PM EST. Oops. So, we signed 3everything, I turned over the keys. But, when the money showed up Monday morning ($460K), the closing agent "forgot" and never completed the transaction. It wasn't realized until the HOA from the old home called me on May 30th or so (32 days after the closing) that I owed money. I immediately called my agent and we both were shocked.

My agent told me that she lost a LOT of money since she had to cover all the accrued interest on my loan as well as other accruals.

I really don't know what specific document I'm looking for. I don't remember signing any "primary" residence rider or anything.

[newbie2]

Normally if it is a primary residence purchase there will be a separate document at closing that states "Borrower intends to occupy the property as his principle residence."

If you can get your hands on the closing package that would be outstanding.

[BCA2009]

Justbroke, I sure don't have the BK knowledge that you do, so I probably can't help much there, but welcome to the Chap 7 crowd. I sure hope it works out for you.

Have you considered moving out and renting it for a while? Do you think that would make a difference? Do you plan on letting it go in BK? If you "Intend to Re-affirm" and stay in the house I think you will have a hard time convincing anyone that it is investment property.

Do you have other non-consumer debt?

We have a 255K investment lot, that would be non consumer debt. Also some of our cc debt was also non-consumer. But the debt on our home home was 287K which made us a consumer Chap 7. We were over the median by 24K and I was worried we may have some issues (but knock on wood, we haven't - 32 days left til discharge). Anyway, my backup plan was to either shortsell or let my home go in foreclosure. We are maybe 60K upside down, but even with that deficiency we would have become a non-consumer case if I got rid of the house.

I'm glad I haven't have to go that route but I would have to get out from under all of our debt.

I guess I'm asking is there a way you could get rid of the house and still be a non-consumer case.

good luck!

[Dst1]

I honestly don't think you have any hope that this an investment property. I freely admit that I am not an expert in FL law but I don't see how you could claim a house you lived in for five years an an investment property regardless of the reason you purchased it. That would never fly with the IRS.

I can see the initial intent of the purchase being a rebuttal presumption but even if you have a "de jure" case the trustee is going to win "de facto".

[BCA2009]

I honestly don't think you have any hope that this an investment property. I freely admit that I am not an expert in FL law but I don't see how you could claim a house you lived in for five years an an investment property regardless of the reason you purchased it. That would never fly with the IRS.

I can see the initial intent of the purchase being a rebuttal presumption but even if you have a "de jure" case the trustee is going to win "de facto".

With the IRS, he you could turn it into investment property by renting it out for a while, but I don't know how that would work in BK law.

[justbroke]

I honestly don't think you have any hope that this an investment property. I freely admit that I am not an expert in FL law but I don't see how you could claim a house you lived in for five years an an investment property regardless of the reason you purchased it. That would never fly with the IRS.

Ah, but the law of the land, in Florida at least, is that whether it was "purchased for investment or personal and family use" is determined when it was purchased, not how it actually was used. The IRS allows conversion, but the BK law, as interpreted in Florida, indicates that conversion doesn't change whether the debt was initially acquired as a consumer debt or not.

I understand that Florida Trustees use this to counter people who initially purchased as a personal property and then converted to rental. Of the cases I looked at, it read as if the conversion to rental didn't change the fact that it was not purchased for investment.

I was hoping maybe someone had seen this in Florida or could provide me with some case citations to my specific issue, but I know that's asking alot.

[justbroke]

Do you have other non-consumer debt?

Yes. Right now, if I include the home as a consumer debt, I'm at 50..2% non-consumer and 49.8% consumer. Some States require it to be more than 51%, but Florida is a simple majority... so it passes. However, the difference is a mere $3K, so the UST is sure to poke at the debts I marked as non-consumer.

[frogger]

Normally if it is a primary residence purchase there will be a separate document at closing that states "Borrower intends to occupy the property as his principle residence."

If you can get your hands on the closing package that would be outstanding.

On all of my investment properties, I had to sign documents that specifically stated that this would not be owner occupied. Perhaps you had to sign one of these too? That would prove investment intent.

[justbroke]

I used the same lender for all my home purchases and/or HELOCs. Well, it appears that every single one of their Mortgages has a standard paragraph about owner occupancy, but then they attach a Rider that strikes and modifies the paragraph. I have that Rider for one of the properties but not both.

[jonance]

Here in KY we have a land records website where i was able to pull up the mortgages for all of my investment properties. I filed non-consumer due to these, just to get rid of them. Each mortgage had wording in them or the rider that they were non-owner occupied. Do you have an online land records website you can use? I printed all my mortgages, titles, etc out for the Trustee from this website.

[justbroke]

Yes, we do and all the mortgages have standard language, but then a Rider is attached.

[jonance]

Well in my experience, I had about 80% non-consumer debt, with the remaining 20% my home mortgage. No consumer debt besides that. My meeting was the other day and haven't heard a peep from the UST. Very interesting meeting, my trustee "wasn't able to make it" and a stand-in TT conducted the meeting. He actually even had someone elses schedule in my packet, and asked me about a Sebring i was holding for someone i'd never heard of

Anyhow, have you filled out the Chapter 7 schedules yet? do you fill out all new papers? As far as I can tell the schedules simply ask if it is primarily business debt to file non-consumer. There is no mention, within the schedules...as to which of the debts are which that I could see. So if i'm not mistaken the only time you would specify that is if asked by the UST. It isn't like you will put the percentages anywhere in the schedules, so my guess is you may be totally overlooked by the UST.

I am over median as well, with my wife and I making about $80k combined (she didn't file). There was no questioning of the fact they were business debts, my I & J, etc...that was my main worry and it simply didn't happen. I would just be prepared to prove the business debts if needed, but again i doubt you'll need them unless they pick on you as an example. One thing i was REALLY glad of is that i decided to get an atty. i know you filed pro se before, but if you anticipate having to prove the business debt, you might want to have one. He also was so knowledgeable of what flies here, the individual trustees, etc...it made the whole process bearable whereas i would have been in bad shape if i had filed myself with my initial draft, before he made adjustments/suggestions. Good luck! Non-consumer does seem to be a bit easier, and actually i heard the opposite here...that the UST very rarely gets involved in non-consumer cases b/c the process of forcing into a 13 (their primary duty) is so difficult in such cases.

[justbroke]

Anyhow, have you filled out the Chapter 7 schedules yet? do you fill out all new papers? As far as I can tell the schedules simply ask if it is primarily business debt to file non-consumer.

There is one place on the "Petition" (Form B1) that has a checkbox for non-consumer. ALso, on the Means Test (Form B22A) there's a checkbox which tells you to STOP the means test since it doesn't apply to non-consumer debtors.

You are right that there is no-where to really list the actual non-consumer debts. However, I have already prepared a spreadsheet with each of my 40 claims and which ones are consumer or non-consumer. I'm 5 steps ahead of the UST.

Good luck! Non-consumer does seem to be a bit easier, and actually i heard the opposite here...that the UST very rarely gets involved in non-consumer cases b/c the process of forcing into a 13 (their primary duty) is so difficult in such cases.

Non-consumer is easier if it's "obvious" that your debts are non-consumer. In borderline cases, it can be difficult. The UST really has nothing to attack you on in a "credible" non-consumer case! The Means Test doesn't apply, and their silly 707(b) motions don't apply either, at least according to my "smart" District!