Legal Question in Real Estate Law in California

Re: investment property gone bad

I agree with Mr. Whipple's advice. Consult a Bankruptcy attorney concerning this matter to protect your interest.

Re: investment property gone bad

You could lose your investment if it were purchase money. If it was a hard money second, you may have a right to a deficiancy judgment. Please call us if you need any further information.

Re: investment property gone bad

As your question was "what happens to your investment if he goes BK" the answer is - in reality - nothing. You have a secured instrument by way of the trust deed. You will still have that unless the first trust deed holder forecloses and there is not enough funds to pay off your note. They would have to file a motion from relief from the automatic stay that is imposed on all creditors while the BK is pending. They are likely to do this if he tries to stay in home and is also behind on that payment and can not pay. And if he transfers something to you that has equity in it (even though a huge amount is protected) the transfer could be reversed by the BK court or by motion of the 1st trust deed holder that may not want to take you on as a payment risk and want to get rid of the loan.

You actually have a number of options given the circumstances, but you will need to provide more facts and info. I suggest you talk to a real estate attorney in your area as we do not even know how much $$ you are talking about here - this also will impact your next move. It is also important to have an attorney familiar with the BK court in your jurisdiction as they really are different from court to court in what they will allow or not - it is important to know the local courts when dealing with BK.

Re: investment property gone bad

Bankruptcy is a temporary roadblock to foreclosure. You would have to go to bankruptcy court and make a motion for relief from the temporary stay that protects the debtor from the moment of filing. Bankruptcy courts rather routinely grant such relief. If you foreclose, of course you know that the buyer in foreclosure assumes responsibility for the first D/T. If the borrower tries to transfer title just before filing bankruptcy, the trustee will probably void the transfer as an illegal preference. I would suggest you consult with a bankruptcy attorney who represents creditors, taking information on all the loans on the property and some estimate of its income value and current market value so the attorney can give you advice on strategy to save whatever can be salvaged here.