Foreclosure Purchase Lost

Question: I took a property at the county foreclosure sale. The owner, a 501c3, filed bankruptcy 15 minutes prior to the sale. The deed was filed just after the sale. We are now in bankruptcy court. I have not asked for the money back from the bank. I want the property. Is there any way I can wait through the bankruptcy proceedings and end up with a valid title or am I going to have to request my money back and go through the sale again?

Answer: Section 362 of the U. S. Bankruptcy Code creates the "automatic stay" at the very moment the bankruptcy petition is stamped and filed. The stay then prohibits any creditor action to seize property, enforce liens, conduct foreclosures or in any way disturb the status quo of the debtor's estate. Any enforcement efforts made after filing are voidable, even when unaware of the filing. Anyone who knowingly violates the automatic stay can be found in contempt. Such is the power and far reaching effect of the automatic stay.

In your instance, while you were bidding on property at foreclosure, the owner was a few miles away filing a bankruptcy petition just minutes before the sale. You then recorded the foreclosure deed and thereafter became aware of the bankruptcy. Since your title is now clouded, you must do something to correct the problem caused by the filing.

The bankruptcy courts frown on last minute filings, especially when filed on the eve of foreclosure to avoid or neutralize a sale. This is especially true of single asset entities. If the foreclosure sale was otherwise valid and without question, the most common remedy is to promptly file a motion to validate the foreclosure sale ab initio (from the beginning) in the proceedings. The motion can be filed by the foreclosing creditor, the bidder at sale, or preferably both. If the court grants this relief, a certified copy of the court's order filed of record will correct the title problem.

If this remedy is not sought, or if not granted, then the foreclosure is voided and the automatic stay returns the parties to the status quo prior to the sale, i.e., the bank is again the secured creditor, the debtor is in default (although protected by the bankruptcy), and the foreclosure purchaser is entitled to a return of his funds. When the bankruptcy ends, or if the stay is lifted, then a new sale can take place with possibly a new bid price and bidder. Alternatively, you might possibly buy the property from the debtor or trustee in the bankruptcy proceedings.

This scenario is a prime example of the risk one takes when buying property at a foreclosure sale. The more paid at sale, the greater the risk. Needless to mention, you need a competent bankruptcy lawyer to guide you in this situation.

Roofing Dispute

Question: I installed a new roof using casual labor on my home. I then marketed the home with a "new" roof. After the home sold and closed I received a call from my real estate agent telling me that the buyer was experiencing a leak in the new roof. I sent my casual labor over to repair it. Now the gentleman wasn't happy with the labor performed and is insisting that I replace the roof with a roofing company. What is my obligation to him?

Answer: I am unfamiliar with the term "casual labor" which suggests work performed by someone who has rudimentary skills such as an inexperienced day laborer. In this instance "casual labor" would mean an ordinary handyman installing a roof instead of a roofing company willing to guarantee the installation and/or materials. I realize that expertise can be relative and very subjective. A day laborer can be capable of excellent craftsmanship, and this is where the complications begin.

Even more troublesome is the term "new roof" which has different meanings. A "new roof" could be one installed today, or installed a few years ago that is as functional now as it was on the day of installation. This term should be avoided in favor of a statement that a roof was installed on a particular day or month or in a certain year, a more accurate representation. While this is a fertile source of litigation, in your case the age of the roof appears not in dispute.

Generally speaking, one cannot be compelled to replace an installed product such as a roof unless it is totally worthless and there is no other remedy. To do so would involve unreasonable economic waste. In your situation, presumably the buyer inspected, or had ample opportunity to inspect, the roof and was satisfied or at least accepted it. At this juncture I would hesitate to have a company install a new roof at your expense, unless in your estimation the job is truly botched beyond correction.

In the event the buyer's complaint does not go away on its own, you may receive an attorney's letter under the Texas Deceptive Trade Practices Act making demand upon you to cure the defect or otherwise settle. You will then have a 60 day window to cure, or attempt to cure the problem, or make a monetary offer in settlement, or a combination of these alternatives. Your willingness to attempt settlement cannot keep the buyer from suing you for misrepresentations, etc., but it can prevent treble damages from being assessed against you under the Act.

Unless you can somehow settle this case on your own, which may not be advisable under threat of lawsuit, I recommend that you seek counsel familiar with this problem at your earliest opportunity, especially if you receive a formal demand. In these situations I recommend settlement if at all possible, unless the demand is totally unreasonable or other factors are present.

Seller Closing Agent for Own Property

Question: Is there any ethics violation for a seller to be the closing agent for their own property?

Answer: What you describe may not be an ethics violation per se, but multiple capacities assumed in a closing such as owner, agent, attorney, closer etc. raise possible ethics issues. Potential violations are conflicts of interest, misrepresentation and/or failure to disclose. I can only recommend that you use your best judgment in these situations, and in cases of doubt, do it some other way. Ethics questions often involve gray areas and can be subjective. Especially in areas of professional conduct, we are to avoid even the suggestion or appearance of impropriety.

Judgment Can Affect Mineral Rights

Question: If you own a homestead in Texas where mineral rights have never been severed and a non-secured creditor files a judgment and records that judgment does that create a lien on the mineral rights?

Answer: If a creditor abstracts a judgment against a Texas homestead owner, the creditor does not secure a lien on any part of the property because it is homestead. If the property is not homestead and the minerals have not been severed, the judgment attaches to both the surface and the mineral estates. If either the surface or the minerals have been severed, then the judgment attaches to whatever interest remains.

Wrapped Mortgages

Question: Given the first and second mortgages are assumable: may they be wrapped into one contract to purchase or should they be in severalty?

Answer: Your question is whether two assumable mortgages can be wrapped together or must they be wrapped separately. The answer is either way. However, if a wrap note includes the unpaid balances of two existing independent mortgages, should one of them be paid off or modified before the other, the wrap note must be credited accordingly or likewise modified. How this occurs depends upon how the wrap documents are drafted. Before you decide to wrap two underlying notes together, I suggest you think through all possible payment scenarios.