Land Contracts

[dhamilton30]

Hi All--

I am in the process of completing the paperwork for chapter 7. My parents hold a mortgage, taken out 5 years ago, on the house I live in. My credit was horrible, so they got the mortgage on the house and I signed a land contract with them at the same time. How do I deal with this on the bankruptcy?

[dhamilton30]

Also, do I have to include them as "insiders" since I have kept current on my payment?

[justbroke]

This is just a very strange situation and really should be handled by an attorney. The Trustee can assume your land contract "if" it's worth it to the Estate. I don't know the value of the home or if you have "equity" in the home or whether you exempted or are able to exempt the equity that you have.

I don't know how they could sell you the home when the home is subject to a security instrument (mortgage) already. Was this contract recorded?

[dhamilton30]

It was recorded with the county. The value of the home is probably around $40,000 if it were to be sold. I plan to reaffirm the debt because I've made payments on the home for 5 years and paid the taxes. I still owe about $30,000 in principal plus interest.

[justbroke]

Okay, so you're not underwater. I was only worried as to the status of the senior mortgage (lien) that your parents have. Are you paying the lender directly or are you paying your parents? Land Contracts are such a touchy topic anyhow. It's just interesting that the lender allowed them to potentially subordinate their lien to yours. Every security instrument (mortgage) that I have read states that the mortgage company must know about this type of transaction and that they can accelerate the note or make the "buyer" qualify and assume the (mortgage) note. Did you and your parents work with the lender?

If you intend to reaffirm, I don't an issue from an exemption standpoint. The homestead exemption in NY is about $50,000 so the $10K in equity should be okay.

However, I'm wondering... did you have this land contract done by an attorney? Just wondering. I'm still a little nervous for you, since you want to file pro se.

[dhamilton30]

The lender is aware of the contract. They have never mentioned having an issue with it. New York is pretty flexible in Land Contracts. When I said its been recorded, I only mean its on file at the county. I never paid any filing fees or had the contract notarized. Should I just "walk away" from the contract? My biggest worry out of all of this is the trustee assuming the contract and kicking me out. Becuse the Land Contract is considered as executory, I dont think I qualify for the homestead expemtion, since I could only list the contract on schedule G. Like I said, my biggest concern is that the trustee will just let me continue with the contract.

[justbroke]

This is why I suggest an attorney. You are in an area which is not common for pro se filers and it is beyond me to even attempt to speculate what the Trustee will think about an executory contract where you actually have equity in the contract.