Can trustee require current financials - 18 months post discharge (Chap 7)

[freeatlast09]

the money for the "side deal" has to come out of the home price therefore meaning a greater loss
for the mortgage holder.

Exactly! When have you ever seen a large bank leave money on the table?

[keepsmiling]

Anything new on this?

[freeatlast09]

Anything new on this?

Nothing filed in the case, no contact from the real estate agent, trustee or our bk attorney. It's been very quiet. Maybe too quiet.

[keepsmiling]

Bumping and checking in. Hoping your tt was sent home with his tail between his legs, his wrist slapped, and a few other more serious metaphorical and real world consequences.

[freeatlast09]

keepsmiling: Thanks for checking in - no news at all here.

We have no idea why everything went quiet. The house is still listed for sale and does not indicate pending status so we don't know if the buyer walked away or BofA didn't like the side deal and said no or what exactly happened. Nothing has been filed in the case, no contact with us or our attorney from from the Trustee and no contact from the real estate agent. The case just sits open trying to sell an upside down property and BofA won't foreclose. Oh well.. it's only been 2 years.

[catleg]

Thanks for the update. Maybe they've moved on to easier pickings.

[nohope]

A couple of questions - why did you vacate your house so quickly? My lawyer told me I could stay in my house until it sold. My case is a Chapter 7 asset case.

[freeatlast09]

- why did you vacate your house so quickly? .

We could have stayed and saved the money, but we had opportunities in another city so we left right away. Though, even if we had stayed, I don't think anyone would have guessed that nothing would have happened over two years later.

[freeatlast09]

Just an update for anyone following our circus.

We did have a contact from the real estate agent again. "Are you sending those docs... etc...?" We made another call to our bankruptcy attorney and in strange twist he has done a 180 and said no - you don't need to provide those documents. He also said - sure the TT can file to try and compel the documents, but probably won't because judges are not big fans of Trustees doing short sales. Also of note, he mentioned that some of his other clients have called him about this very same issue. I guess it's the hot new trend.

I also managed to find a real estate agent's blog post about this very topic. Here is a cut and paste from that blog:

"Another situation becoming more prevalent is where the home owner is not only selling their home as a short sale, but they are filing for bankruptcy as well. The bankruptcy trustee has the homeowner sign the home over to them, then charges a $10,000 “carve-out” fee on top of the Realtor’s commission. Many banks are refusing to pay the carve-out fee and after being months into the sale transaction, the trustee will indicate that the buyer has to come up with an extra $10,000 cash to pay his fee or the trustee will not let the sale close. This is despite everyone involved in the transaction agreeing to the sale price months before."

Des: if you're out there, have you heard of this happening a lot? I've been searching the phrase 'carve-out fee' and have found a few articles, but not a whole lot. Will this be the new trend from Trustees?

Thanks to all who are following.

[despritfreya]

"Another situation becoming more prevalent. . . The bankruptcy trustee has the homeowner sign the home over to them, then charges a $10,000 “carve-out” fee on top of the Realtor’s commission. Many banks are refusing to pay the carve-out fee and after being months into the sale transaction, the trustee will indicate that the buyer has to come up with an extra $10,000 cash to pay his fee or the trustee will not let the sale close. This is despite everyone involved in the transaction agreeing to the sale price months before." Des: if you're out there, have you heard of this happening a lot? I've been searching the phrase 'carve-out fee' and have found a few articles, but not a whole lot. Will this be the new trend from Trustees?

I am glad to read that your attorney has finally turned from the dark side.

As to this “trend”. . No I have not seen it in my district but I wouldn’t put it past a “greedy” Trustee. I believe doing this is going down a slippery slope as it will lead to throwing debtors out on the street even if they wanted to keep their homes despite no equity. Some greedy Trustee will take it upon himself to “cut a deal” with a lender and sell the home out from under a debtor who had every intention on paying and staying. Even the homestead exemption might not stop this. Remember, normally a Trustee cannot sell an exempt asset unless the sale produces enough to pay the debtor the allowed exemption first. But what if the homestead is “worthless”? Can a Trustee bypass this long standing principal? Theoretically, when there is no equity there is no expectation of “homestead proceeds” upon a forced sale by a Trustee. The Trustee would be selling the property because he is stepping into the shoes of the lender by getting a “carve out” from $$ that would have otherwise gone to the lender. Can a debtor lose property under this circumstance? What if payments are current? What if the debtor is smack in the middle of attempting to modify the loan? I sure hope that this is that the path the system is going down.

Now, if the debtor is surrendering the property and has vacated it, this new tact might be beneficial. The Court takes control over the property. The Debtor does not care about the property. The Debtor is not asked to do anything, which is the way it should be. The Trustee finds a buyer and the short sale is approved by all with some $$ (“carve out” or kick back) going to the bk estate. This is not a bad thing since the property is no longer sitting vacant and reducing other property values in a neighborhood. Also, if there is a HOA, the debtor no longer has to deal with that issue. I can see this working but I think the danger in condoning this tact (as stated above) is something that must be addressed.

Des.

[freeatlast09]

I am glad to read that your attorney has finally turned from the dark side.

yes - I don't know if we just caught him on a bad day last time, but it was like talking to a completely different person.

I believe doing this is going down a slippery slope as it will lead to throwing debtors out on the street even if they wanted to keep their homes despite no equity. Some greedy Trustee will take it upon himself to “cut a deal” with a lender and sell the home out from under a debtor who had every intention on paying and staying.

Exactly the scenario we were thinking this type of thing could lead to... not good at all.

This is not a bad thing since the property is no longer sitting vacant and reducing other property values in a neighborhood.

Agreed. As in our case, we don't care what the TT and lender work out between them - we just don't want to be involved.

As always - thank you for your input. I always seem to learn something from your posts.

[despritfreya]

I just had to revive this thread due to several e mails I received from the bk attny roundtable and, of course, to ask OP for an update.

Today there was a thread on the “attny roundtable” relating to the subject of this thread (coincidence only). I have tried to put the posts in the order in which they were received. The posters (names removed) are all respected attorneys who regularly post to the “roundtable”. . . but I have to tell you, they have nothing on this Forum.

For your reading pleasure:

1. On 5/25/2011 12:41 AM, Dan C wrote:

Chapter 7 debtor is $200k upside down on her residence after refinancing to pay off divorce settlement. Debtor claimed no exemption in her residence, and stated intention to surrender. Lender (no 2nd) got relief from stay 45 days after filing. The mortgage debt is non-recourse here in Washington.

If the trustee short-sells the house after discharge, would the debtor be liable for cancellation of debt tax liability? IRS Publication 908 (Bankruptcy Tax Guide) seems to say that a short sale by the trustee would be taxable if at all to the trustee, not to the debtor. Otherwise, the debtor would presumably still be insolvent after discharge when the house is sold as the secured debt is not discharged, so the insolvency exclusion for COD should apply.

Any input appreciated.

2. Sent: Wednesday, May 25, 2011 7:14 AM by J Subject: Re: Short sale tax liability in Ch 7:

I am a bit confused. Why would the trustee short sale a house. Generally the seller in a short sale gets NO proceeds from closing (sometimes gets an incentive but that would not apply here). What is the benefit to the bankr estate and/or creditors?

3. At 07:58 AM 5/25/2011, DP wrote:

Trustees have been known to try to cut carve-out deals. Courts have also been known to reject these efforts that don't benefit unsecureds.

4. From: D To: roundtable Sent: Wednesday, May 25, 2011 10:01 AM Subject: Re: Short sale tax liability in Ch 7:

The carve-outs are common in this district. The trustee just informed me that the bankruptcy estate, not the debtor, would get any tax consequences in this case.

5. From ???. Sent ???:

How exactly does a carve out work and how does the Trustee or Bankruptcy Benefit? How much can a trustee make? In my district the Trustee's apparently do this quite often (Western Washington Seattle).

6. On Wed, May 25, 2011 at 1:54 PM, D. wrote:

In a case where I represented an unsecured creditor Chase had 1st mtg for $590k and 2nd for $95k. The house sold for $470k, but Chase got only $424k with a $20k carve-out. Trustee's fees were $10k plus, and the net after the $10k that was left went toward a large IRS priority claim. There were motions but the trustee may not have actually appeared in court.

_______________________________________

Aside from the premise of the original post which is makes little sense since we all know there is no taxable event when a debt is discharged, you can clearly see that even us attorneys are stumped.

On second thought, I wonder if there is a tax burden since the estate is making a "profit" where none should exist. Thoughts?

Des.

[freeatlast09]

Very interesting reading Des. I found post 6 the most revealing - $20k carve-out with 50% going to the Trustee??? Wow - aren't they "supposed" to make money for the unsecured creditors? How is that fee justified to the judge? In my opinion, it should be a taxable event for the estate - it's money from thin air - not from the selling of an asset.

As far as an update in our case - nothing at all happening. The house still sits 'active' on the market (no pending status), nothing filed in the case, no contact between the TT and our attorney. It's very strange. We've been considering our options. We could file a Motion to Compel Abandonment, but even if that were successful, we'd then have to wait for the bank to foreclose which could take another year (or more). If we do nothing, the Trustee could hold this case open for years. It's been over 2 years now since a payment was made on the house and the bank had the stay lifted in Aug/2009 but has made no move towards foreclosure. Thoughts from anyone?

[justbroke]

Des, I wonder what the IRS would say. No, really... I wonder. Is it a taxable gain? I believe so since it is new "income" to the Estate. I agree that if there was any tax liability, it would be the Estate's liability. The Trustee may not walk away with as much as they think they would, but it's still a liability.

Now, someone needs to fight against this absolute nonsense. There is no reason that a Trustee should be in this type of business at all. The entire purpose of the Bankruptcy code was for quick liquidations. Not for Trustees to wheel and deal and find creative ways to earn money.

[despritfreya]

Now, someone needs to fight against this absolutely nonsense. There is no reason that a Trustee should be in this type of business at all. The entire purpose of the Bankruptcy code was for quick liquidations. Not for Trustees to wheel and deal and find creative ways to earn money.

ABSOLUTELY CORRECT

Des.