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If the person purchasing my land files bankruptcy, will I be able to reclaim my property?

Phoenix, AZ |

I sold a piece of land 5 years ago with 5 years interest only payments and a balloon that is due the end of this month. The buyer paid in good faith except for the past 2 mos. I am now concerned that if he files for bankruptcy, we may lose the property. Since this is a secured debt, do I have the option of keeping the land if he files for bankruptcy? Is there any way we can take back the property, other than foreclosure, which I've heard is very expensive? The buyer is interested in pursuing a 'deed in lieu of foreclosure'. I'm not a big bank...we want to keep the property for resale when the market picks up (this is our retirement nest egg). Any ideas or suggestions on how we can keep our property would be greatly appreciated.

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Attorney answers 2

Best Answer

I'll address the issues the former comentator did not.

First, if you have a valid Deed of Trust, you would be a secured creditor in a bankruptcy. This does not mean, however, that if the buyer files, you get the property back necessarily. I am making an assumption here, but if your buyer has been making interest only payments, and the land was purchased at the height of the real estate bubble, I am assuming that your buyer has no equity in the property. If this is the case, your buyer has pretty much just two options: 1) your buyer can pay off the balance, or 2) abandon the property back to you. Now, there is a very slim possibility that your buyer has filed Chapter 11 and would be seeking to keep the property as part of the Debtor's ongoing business. If this were the case, more analysis would be necessary.

Next, if your purchaser has not filed for bankruptcy, you would be able to sue on the balance owed. If you were to do a deed-in-lieu, you usually waive your claim for a deficiency, but you don't have to.

And finally, if you do go through with a deed-in-lieu, you should make a condition of that transaction that your buyer execute back a warranty deed to you and that your buyer gets a title report and insurance on the property. You don't want to take back this land with a bunch of liens on it.

Hope this was helpful.



If your purchase arrangement allows you to foreclose, then a deed in lieu of foreclose would be a good thing for you. Instead of forcing you to incur the costs of foreclosing on the property, your buyer has offered just to give it back, which costs you only the fees to prepare the deed. Once that deed is done properly, it is as though the sale never occurred. Get the help of a lawyer to make sure it gets done right.