Legal Question in Real Estate Law in California

I am suing a seller for specific performance because he cannot convey title because he has liens on the property that are in excess of the purchase price. So because he cant pay them, he wants to cancel contract. If he files for bankruptcy or goes into foreclosure, can he get away with it?

Asked on 6/25/21, 2:43 pm

1 Answer from Attorneys

Timothy McCormick Haapala, Thompson & Abern, LLP

The last thing you want is specific performance of a contract to sell you property that has more money in liens against it than it is worth. Your purchase money would go to the lien holders in order of priority, leaving the junior liens in place against the property. Unless you then pay them, they can foreclose and you lose the property.

If he files for bankruptcy, your contract would be cancelled. What happens then depends on how much of the liens are for voluntary loans, and how much is judgment or other involuntary debt. Loans and other voluntary liens survive bankruptcy, even though the underlying debt may be discharged. The lender pretty much automatically gets relief from the bankruptcy stay on collections and forecloses even before the bankruptcy is completed.

You can sue for breach of contract, but it sounds like your judgment would just get in line behind other creditors. It would never be collected.

If you really want the property your best bet is to cancel the contract and wait around for the foreclosure. Then buy it in the foreclosure auction, or buy it from the lender after the lender takes title.

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Answered on 6/26/21, 4:34 pm

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