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Wednesday, February 3, 2021

Selling your mortgage note. How to Sell the note.

 

If you own a real estate Note and you’re interested in selling it, you first have to make buyers aware, but it is a good idea to be prepared before you start sending emails and making phone calls.

Here are a few things to keep in mind:

1.       Valuing the property. We, as note buyers, want to know the best value. Not the potential value…the best value. And while some properties can be hard to value, do not let that get in the way of being transparent. Disclose the challenges.

Here is another thing that is important to disclose - property damage. The only person who stands to suffer if a property with damages is overvalued is the seller. You! Most investors will sniff out damages and, if not disclosed, will kill the deal.

2.       Know your taxes and liens. Most likely, if you are interested in selling your Note, you know if there are delinquent or sold/forfeited taxes. You may not WANT to know the reality that there is delinquent or sold/forfeited taxes, but…you know.

The things you may not know, however, are:
– If the sold/forfeited taxes are redeemable; and
– If there are prior unreleased mortgage liens or municipal, city, or tax liens that need to be released.

Our recommendation is to dig! Learn as much as possible about your property’s taxes and liens before approaching a buyer.

3.       Get your pay history in order. One of the biggest factors in valuing a Note sale, from a buyer’s perspective, is pay history. We want to know upfront: has the borrower ever struggled to stay current?

NOTE: A sure-fire way to kill a deal is to make it difficult for the buyer to obtain evidence of pay history.

4.       Get collateral in order. You need to be able to say whether there are any gaps in the assignment. You also need to have the Title Policy, a lost note affidavit (if there is one), and the recording of the mortgage or Deed of Trust.

 

5.       Be prepared for the closing. You have dotted your I’s and crossed your T’s and you are ready to close with your buyer when you sell your note. Here are a few things to consider:

·         Have you set reasonable expectations regarding the timing of the closing?

·         Is an escrow closing required? If so, does that closing line up well with the Note sale closing?

·         Are there any challenges with the Mortgage Loan Purchase Agreement (MLPA)?

·         Does the buyer have any funding issues?

The last bullet point is a biggie. Do not hesitate to kindly confirm your understanding of the funding timeline…like, multiple times, if necessary.

Reputable firms like Dennis Love LLC have the funds ready to transfer; less-than-reputable firms may get into a deal without the necessary funds ready to roll. Listen carefully and trust your gut…if something does not feel right, speak up.

Get ready!

Dennis  Dahlberg

Level 4 Funding LLC
DennisLove.com
Broker/RI/CEO/MLO NMLS 1057378 | AZMB 0923961 | MLO 1057378
9133 W Plum Road | Peoria | AZ | 85383

4 Warning Signs of a Bad Wholesale Deal

 Wholesaling is among the most popular exit strategies for entering the competitive world of real estate. With minimal capital and no experience, wholesaling offers new investors the quickest method for generating a healthy income in real estate. However, not all wholesale deals are created equal. Truth be told, some deals are not worth your time, or your money, and you need to be able to recognize them before you make your next move. To identify a good wholesale deal, it is important to understand the fundamentals of what real estate wholesale is.

Wholesaling is the act of buying a property, marketing it to a potential buyer, and then selling or assigning the contract to a buyer. Often, the wholesaler will never actually purchase the property but instead sell the home before the contract with the original seller closes. To gain a better understanding of real estate wholesale, and distinguish the difference between a good and bad deal, here are four warning signs of a bad wholesale deal.

4 Warning Signs Spotting - A Bad Wholesale Deal

No Seller Motivation

The earliest sign of a bad wholesale deal is a distinct lack of motivation on behalf of the seller. As a foreshadowing of things to come, lack of motivation from the seller will hinder almost any deal — no matter how profitable it may be — and should be eliminated during the early stages of property analysis. Asking the following questions will assist in determining a seller’s motivation:

What is your reason for wanting to sell currently?

How quickly are you looking to sell the property?

What is your ideal closing date?

What are your plans if the property does not sell?

If the seller is not motivated, and the property does not appear to have a significantly higher after repair value (ARV) compared to the price, it may not be a good deal. However, a last-ditch effort may be to make a very low ball offer over the phone to ensure you didn’t miss something.

General Property Information Does Not Match

Most bad wholesale deals can be eliminated by simply minding your due diligence. The first step in evaluating a good wholesale deal is to gather the critical information about the property, including the seller’s situation, which can usually be found from either the seller, agent, or a third party. It is important to know the status of a property and whether it’s owner-occupied, vacant or a rental, as this will provide insight and better information on the seller’s motivation to sell.

Owner-occupied: This is when the seller is currently living in the property. Not only will they have a stronger emotional attachment to the home but arranging buyer showings will be much more difficult.

Vacant: A vacant property is ideal for wholesalers for two reasons: for one, there is no one living in the property so it’s much easier to schedule buyer showings and two, this could be a sign of distress depending on the seller’s situation which means more motivation to sell.

Rental: It is important to gather as much information as possible on rental properties. You should educate yourself on the number of tenants, their rents, and lease terms for a potential property because the buyer will essentially inherit them.

To ensure information is correct, it’s important to obtain its property card. As the city’s record of information about a property, including ownership and all of its improvements, a property card will ensure there aren’t any discrepancies between what the agent or seller has told you.  

No Equity/Not Enough Upside

The magic word when locating a wholesale deal is equity and securing this information beforehand will make it much easier to decide if you want to make the seller an offer. If there is little or no equity and the seller is current on his mortgage, there will not be much you can do with this deal. To make a profitable deal that is worth your time, it is crucial you consider the following:

What does the seller currently owe in total against the property?

Does that include all liens and mortgages?

Is the seller current on payments? If not, how many months behind?

If there is little or no equity and the seller is behind payments, then the only way for you to create equity is to negotiate a short sale with the bank. Remember that when wholesaling there needs to be enough upside for you to not only get the property at your price point, but also getting an investor to see the value.

ARV (After Repair Value) Is not High Enough

Valuing real estate accurately is a major cornerstone of success for any wholesaler. It is also a make-it-or-break-it moment for wholesale deals.

When assessing the ARV (After Repair Value) of a potential wholesale property, it is important to use a sales comparison approach–the litmus test to figuring out if a deal has potential. This approach will directly compare the potential property against three or four recent sales of similar properties, as well as comparing common significant property variables that warrant price adjustments. For wholesalers, using the 70 percent of ARV rule is a great formula to measure profit margins when purchasing distressed real estate, as it will calculate the maximum you can pay for a given property.

Remember, you are ultimately trying to determine what the subject property will be worth once it is fixed up. This is quite different from trying to appraise the property in its “as-is” condition. As a wholesaler, you must show a rehabber that he or she can make a profit from the transaction by adding value to the property.

To locate data on comparable properties, there are a slew of paid and free services such as Redfin and Zillow, as well as the Multiple Listing Service (MLS) for more detailed information. It is also important to speak with a local real estate agent or expert in the area, as they are best at determining an accurate after repair value. To gauge the ARV of a property accurately, relying solely on online tools and websites is not recommended. Instead, a combination of online resources and due diligence is preferable and will ultimately provide the most comprehensive insight.

At the end of the day, wholesaling is not a get-rich-quick business but rather an entrepreneurial path to achieving financial freedom. With some hard work, planning, time, energy, and resources, you too can find the right wholesale deal to get started wholesaling.

 

 

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

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Tuesday, February 2, 2021

A Guide To Real Estate Financing

 A Guide To Real Estate Financing

As a beginner investor, understanding how to finance a deal is just as important as finding one. A lack of real estate financing continues to hinder most new investors in today’s market, simply because they are not aware of the different financing avenues. Whether you have access to working capital or not, there are always ways to acquire capital.

Investing in real estate is never a bad idea. It offers potential investors a slew of financial and personal benefits such as increased cash flow, home appreciation, and tax benefits. In fact, real estate investment continues to be one of the most popular vehicles in producing financial wealth. According to the IRS, approximately 71 percent of Americans that declared more than a million dollars on their income tax returns in the last 50 years was in real estate. Ironically, beginner investors face the challenge of learning how to obtain real estate investment financing before they can start creating wealth. Read on to learn about some of the most common types of real estate financing options out there, as well as prominent loans for real estate investing.

What Is Real Estate Financing?

Real estate financing is a term generally used to describe an investor’s method of securing funds for an impending deal. As its name suggests, this method will have investors secure capital from an outside source to buy and renovate a property. Not unlike traditional financing, however, real estate financing comes complete with terms and underwriting, not the least of which need to be fully understood before entering into a contract.

How To Obtain Real Estate Investment Financing

One of the biggest misconceptions of real estate investing is that you need to have a lot of money to get started, which simply isn’t true. The secret that many professionals don’t understand, however, is the fact that there is a multitude of different real estate financing options available to fund every investment. Because the method in which a specific deal is funded can greatly impact its outcome, understanding the financing aspect is imperative.

As an investor, there are a few different ways to go about financing real estate investments. Each one will have its own set of pros and cons, and your financing approach will depend on the property and the situation. For beginner investors, it’s important to remember that not all real estate investment financing options are created equal. What works for someone else may not necessarily work for you, but the trick is understanding which real estate financing option will compliment your business strategy. By taking the time to research the various real estate financing options out there, new investors are sure to realize how accessible investing can be. Broadening one’s toolkit of real estate investment financing options is simply a matter of being knowledgeable about what strategies exist, as well as proper ways to leverage them. Keep in mind that all investors have faced the financing hurdle at some point in their career; when in doubt, there is nothing wrong with tapping into your investor network and ask for advice.

Real Estate Financing Options

Investors with a deal lined up have already accomplished one of the most important steps in home flipping. However, finding a viable deal is only one piece of the puzzle. Once you find a good property to invest in, you need to then be able to finance the impending transaction.

Financing a real estate deal tends to send new investors into a fit of anxiety or is even enough to compel them to pack up their dreams and retreat to their nine-to-five job. However, if an investor commits to doing his or her due diligence, the fear of a lack of funds is irrational.

If you have a great deal on the table, there is no limit when it comes to ways to fund it. A great example would be leveraging a self-directed IRA, which would require some careful consideration beforehand; however, it goes to show that there are many available options for real estate investment financing. For investors wondering how to finance an investment property, I will explain some of your real estate financing options:

Cash Financing: Great for investors who have access to a significant amount of capital, either personally or through their network, and wish to purchase properties free and clear.

Hard Money Lenders: Accessible to investors who have less-than-perfect credit or financial history and are in need of a short-term loan.

Private Money Lenders: Investors who are well-connected can often tap into capital from personal connections, borrowing money at a specified interest rate and payback period.

Self-Directed IRA Accounts: Individuals who have elected to create savings through a self-directed IRA may make the decision to tap into their account as a way to access capital.

Seller Financing: Buyers and sellers can sometimes strike up a mutually beneficial agreement, allowing the investor and seller to avoid having to go through a private lender altogether.

Peer-To-Peer Lending: This is a great option for investors trying to raise the last portion of funding for a project. Peer-to-peer lending can offer high flexibility and low-interest rates.

Cash Financing

As an investor, cash is a monumental tool to getting what you want. Along with getting more offers accepted, cash financing enables investors to save on interest, increase their cash flow, and receive instant equity in their investment. It also has the ability to save investors on the purchase amount.

In the first quarter of 2016, all-cash homebuyers for single-family homes and condos paid, on average, 23 percent less per square foot than all homebuyers nationwide, according to RealtyTrac.

In addition, it is important to remember there will be times when paying cash for property makes sense and other times when other financing options should be considered. If you have your own capital, however, you should always consider using it in the best possible scenarios.

Hard Money Lenders

 

Funded by private businesses and individuals, hard money lenders provide short-term, high-rate loans for real estate investors. This financing option, which does not conform to bank standards of creditworthiness, is typically used by rehabbers looking to renovate a property.

Hard money financing is generally determined by the value of the investment property itself, with lenders analyzing the “After Repair Value” (ARV) to determine the size of the loan. Hard money lenders generally will not fund an entire deal, but rather fund a percentage of the purchase price or the after-repair value, which will range from 50 to 70 percent.

Hard money lender also charges fees apart from the interest on the loan. These fees are generally delineated in points (three to five), which represent additional percentage fees based on the loan amount. In general, hard money lenders charge much higher interest rates – sometimes double the amount of a traditional mortgage, plus fees. In the end, all hard money lenders will have different requirements and real estate investors need to be fully aware of what they are getting themselves into.

Private Money Lenders

Private money lenders are integral to the growth of every new investor. They have the means and intent to invest capital into your business, and they are just as interested in working with you, as you are with them.

Private money lenders will provide investors with cash to purchase real estate properties in exchange for a specific interest rate. These terms will generally be established up front and with a specified payback period – anywhere from six months to a year. These loans are most common when investors believe they can raise the value of a particular property over a short period of time, typically through renovations. It’s also important to understand that, like hard money, private money should only be used when you have a clearly defined exit strategy.

Self-Directed IRA Accounts

self-directed IRA (Individual Retirement Account) is, at its most basic level, a savings account that allows for compounded, tax-free growth, over time. Self-directed IRAs are unique from other types of savings accounts, such as a 401K, as the owner can control a wide array of investment options, including real estate.

Owners of self-directed IRA account enjoy a unique benefit of being able to purchase, rehab and sell properties while still being able to defer taxes. However, it is important to note that owners under the age of 60 are typically subject to a penalty for withdrawing funds early.

Seller Financing

There are some scenarios when both an investor and a seller can strike up a mutually beneficial seller financing deal. In seller financing, the buyer of the property will make payments directly to the seller of the property, rather than going through a bank. This can help a motivated seller sell the property more quickly, and the investor can avoid having to jump over traditional mortgage lending hurdles, such as financial and credit score minimums.

Together, the buyer and seller can often enjoy a faster transaction process, as well as avoid many costs and fees associated with the closing process. Furthermore, the owner has the option to sell the promissory note if they no longer want to manage their own owner financing.

Peer-To-Peer Lending

Peer-to-peer lending allows investors to borrow money from other investors, or groups of investors (hence the name). The basic process can be thought of similarly to hard or private money lending, though the specifics are quite different. Like these methods, investors are able to bypass the strict requirements of traditional funding and allow their portfolios to do the talking.

This form of real estate financing does typically involves a lower loan-to-value ratio when compared to other types of funding. This often prevents investors from borrowing the entire loan amount needed to purchase a property; however, don’t be afraid to seek out the financing you need. Peer-to-peer financing as a whole offers a high degree of flexibility overall.

Best Loans For Real Estate Investing

When examining the large umbrella of different real estate financing options, one should also take into consideration loans that are offered by the government, traditional lenders, as well as methods of leveraging personal equity. Read on to find out some of the most popular loan options that are used creatively by investors, including real estate investment loans on bad credit:

203K Loan: A special type of loan backed by the Federal Housing Administration, 203K loans support the purchase of older or damaged properties in need of rehabilitation.

Home Equity Loan: Homeowners who have built up equity in their property are able to take out a loan in the form of a line of credit, allowing them the flexibility to expand their portfolios by using their equity as collateral.

FHA Loan: Consumers with less-than-perfect credit or those who do not have access to capital to satisfy a large down payment can achieve homeownership by taking out a mortgage backed by the Federal Housing Administration.

Traditional Mortgage Loan: Conventional home loans financed by banks still remains one of the most popular methods of financing real estate deals.

Conforming Loan: As its name suggests, a conforming loan is a mortgage that is equal to or less than the amount established by the conforming loan limit set by the FHFA. Perhaps even more importantly, conforming loans are in compliance with Freddie Mac and Fannie Mae.

Portfolio Loan: Portfolio loans are serviced by the initial lenders that first issued the funds. Instead of selling the loan to the secondary market, however, the servicer will keep the loan in its own portfolio.

VA Loan: A VA loan is a mortgage that is guaranteed by the United States Department of Veterans Affairs.

203K Loan

203K loans are a special type of loan backed by the Federal Housing Administration and is designed specifically for those who plan to rehabilitate older or damaged properties. The loan includes the price of the purchase of the property, plus the estimated costs to make renovations. 203K rehab loans are attractive to some because of the low-down-payment requirement of 3.5 percent and allows the funding of cosmetic or major repairs as needed. In addition, the borrower can include 6 months’ worth of mortgage payments in the loan.

This policy is designed to help homeowners make mortgage payments during the time that they cannot live in the property during its rehabilitation phase. Investors should be aware, however, of some potential downsides to this loan. First, 203K borrowers are required to hire a licensed contractor and construction consultant, meaning that DIY projects are not allowed. In addition, fix and flip investment properties are not eligible. Those would be able to take an owner-occupied approach, by purchasing a property with 1 to 4 units.

Home Equity Loan

When an investor has built up equity in the form of their personal residence, then they have the opportunity to take out a loan against that equity. A home equity loan, more formally known as a Home Equity Line of Credit (HELOC), allows homeowners to leverage their home equity as collateral in order to take out a loan. Common uses for a home equity loan include home repairs, education, or the resolving of debt.

A major benefit of a home equity loan is the low rates that are typically based on the prime rate, currently at a low. In addition, borrowers enjoy the flexibility to use the loan how they would like, as well as manage their own repayment structure. This flexibility creates an avenue for homeowners to expand their portfolios on their own terms.

FHA Loan

The FHA loan is one of several home loan options offered by the federal government. The Federal Housing Administration (FHA) established the loan to help broaden access to homeownership for consumers with less-than-perfect credit profiles, as well as those who do not have the financial means to save up for a large down payment. When a new homebuyer shops for mortgage loan options, they can search for lenders that offer mortgage loan products that are backed by the FHA. These loans offer a down payment requirement of as low as 3.5 percent, while still allowing for a low-interest rate.

It should be noted, however, that putting down less than 20 percent on a home loan will result in a required private mortgage insurance payment. In addition, the FHA loan only allows owner-occupied properties but does allow for the purchase of a property with more than one unit. According to The Lenders Network, the current loan limit for a single-unit property ranges between $294,515 to $679,650, depending on whether the market is a low-cost or high-cost area.

Traditional Mortgage Loan

One of the more popular financing methods in real estate is through traditional lenders, which includes conventional and FHA loans. Many investors are pursuing traditional lender financing options in today’s market because interest rates are at historic lows.

However, traditional lenders follow strict guidelines with many demands that other financing options don’t require. The hurdles with traditional loans, such as a conventional mortgage loan, include a sufficient down payment (anywhere from 15 to 25 percent), an adequate credit score (a minimum of 680) and documentation of income. In addition, the money used must be what is called “sourced and seasoned” for at least 60 days and cannot be a gift. In many cases, this could limit many investors.

Conforming Loans\

Conforming loans, as their names suggest, conform to standardized rules set forth by Fannie Mae and Freddie Mac. More specifically, however, the “conforming” part of these loans refers to the amount loaned out. Conforming loans must be less than the conforming loan limit, set by the Federal Housing Finance Agency. The 2019 limit for conforming loans is set at $484,350, or $31,250 more than the conforming loan limit set the previous year.  It is worth noting, however, that the conforming loan limit isn’t universal across every market. In higher-priced areas like New York or San Diego, the limit is higher.

Outside of the size of the loan itself, conforming loans are also characterized by the following:

Loan-To-Value Ratio

Debt-To-Income Ratio

Credit Score & History

Documentation requirements

Portfolio Loans

Portfolio loans are financed by the loan originator, but instead of being sold to a secondary market—like most traditional lenders tend to do—the lender will retain the loan for their own portfolio. As a result, borrowers won’t have to establish a relationship with another lender and can, instead, maintain the connection with their current lender. In other words, it’ll be much easier to maintain an open line of communication.

VA Loans

VA loans are intended to service United States Veterans, Service Members, and their spouses. VA Loans are issued by qualified lenders and guaranteed by the U.S. Department of Veterans Affairs (VA). Specifically, the VA will guarantee a maximum of 25 percent of a home loan amount up to $113,275, which limits the maximum loan amount to $453,100. Meanwhile, “the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed,” according to VAloans.com.

Using lender financing is a great option for beginner investors, but it’s important to be patient and prepared. Make sure you understand the process and what is required to get approved.

Summary

When it comes down to it, real estate is a commodity that must be paid for. As an investor, it is up to you to determine which real estate financing will work best for each deal. Ultimately, understanding the importance of real estate financing, including the different financing methods used by real estate investors, will assist in getting started. Now that you have been equipped with some of the most popular financing strategies, there is no need to hesitate to take on your next venture.

Which real estate financing option was the most compelling to you? Share your thoughts in the comments below:

 

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701


About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2020 Level 4 Funding LLC. All Rights Reserved.

Has your tenant or borrower filed a BK? Are you Screwed?

I have recently had a borrower file a bankruptcy one week after the loan was completed. Now what?   I have called my attorney David and asked him what is going on? He said the person filing the Bk is a “serial filer”. He sent me this explanation on the rules and regulations. I am not an attorney and get confused with all this legal jargon. So here is what he said. I have added my comments in Blue.

My recommendation if you are facing a BK proceeding that you work actively with a good attorney, (like David Knapper) and get ahead of the problem.  

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A Common Misconception About Bankruptcy

By Attorney David Knapper

Many people assume individuals can file bankruptcy only once every several years. Wrong! 

Generally speaking, if a debtor suffers a premature dismissal of a bankruptcy (either because the debtor does not dot all his legally required “I’s” and/or cross some “T’s” or because the debtor voluntarily requests his bankruptcy be dismissed), but then files another bankruptcy, the later bankruptcy invokes an 11 U.S.C. § 362(a) automatic stay commanding almost all actions against this debtor be ceased, and with all actions taken in violation of this stay being not only void, but possibly triggering the violator responsible to pay serious monetary sanctions. It just can’t be ignored that upon the invocation of a § 362(a) stay, any landlord or lender of the debtor is, on most occasions and to their dismay, going to be stuck in the mud. (So what does this mean? It means if a deadbeat that files bankruptcy and screws it up and the court kick it out, (dismissal of bankruptcy) then the deadbeat can turn around and file it again, get dismissed, and file again get dismissed, and again, and again.)

This explains, in part, why in the years 2010, 2016, 2017, 2018 and from January 1 through May 31, 2019, 41,579 (has anyone yet forgotten the “Great Recession”?), 14,657, 15,296, 15,742 and 6,792 bankruptcies were filed in Arizona, respectively.

This also explains why there are serial (not the breakfast cereal type of) bankruptcy filers who abuse the Bankruptcy Code by filing one bankruptcy after another to thwart their landlords and lenders. In fact, this author encountered a debtor (a disbarred attorney) who had filed more than 15 bankruptcies. (This happens a lot.) 

Yes, pursuant to 11 U.S.C. § 727(a)(8), a debtor who has secured a discharge order in a Chapter 7 (liquidation) will not qualify for receiving another Chapter 7 discharge until 8 years following the commencement of the earlier bankruptcy. However, § 727(a)(8) only applies when a discharge order was entered in the earlier Chapter 7, and doesn’t prevent a debtor from then filing a “Chapter 20” by initiating a Chapter 13 (consumer reorganization) immediately following successfully completing a Chapter 7. Thus, opportunistic debtors are prone to file multiple Chapters 7 (and/or Chapters 13) wherein they intentionally suffer premature dismissals before discharge orders are entered and/or embark on Chapters 20. Then, do not forget the filing of Chapters 11 (business reorganizations) is also a possibility. (So if they get a Chapter 7 completed, the debtor can turn around and file Chapter 13 and the lender and landlord are screwed again.)

Bottom line: while the Bankruptcy Code does prohibit debtors from securing discharge orders in Chapters 7 more than once every 8 years, only under limited circumstances will the Code keep bankruptcy serial filers in check.

The Bankruptcy Code was amended by the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCA”), which President George W. Bush signed on April 20, 2005 and became effective October 17, 2005. The BAPCA has significance here because it included the adoption of 11 U.S.C. § 362(c), and with § 362(c) designed to deal (although this author respectfully submits, inadequately) with bankruptcy serial filers.

According to 11 U.S.C. § 362(c)(3) and In re Reswick, 446 B.R. 362 (9th Cir. BAP 2011), if a 2nd bankruptcy is filed within 1-year of a previous bankruptcy being prematurely dismissed, then the aforementioned § 362(a) automatic stay only lasts for 30 days from the date the 2nd bankruptcy is filed, unless the debtor proves during this same 30 day period by “clear and convincing” evidence (note: not a simple preponderance of the evidence, but not as onerous as a “beyond a reasonable doubt” evidentiary standard) that the 2nd bankruptcy was filed in good faith, plus if your this debtor’s landlord or lender, you’re adequately protected. (So if they file, the stay is only good for 30 days. What Happened on day 31? So they are just buying some more time to screw the lender? It dies unless they provide clear and convincing evidence?)

According to 11 U.S.C. § 362(c)(4) and In re Nelson, 391 B.R. 437 (9th Cir. B.A.P. 2008), if a 3rd bankruptcy is filed after 2 earlier bankruptcies were prematurely dismissed within the past year of the third, then there is no § 362(a) automatic stay, not even for the first 30 days of the 3rd bankruptcy. However, a debtor can still petition the bankruptcy court in this 3rd bankruptcy to invoke the automatic stay, thereby requiring an evidentiary hearing. (If they are doing a 3rd, does this mean that 1-2 were premature dismissal of bankruptcy because they screwed up? Or How was it dismissed.)

State court judges and justices of the peace, and constables and sheriffs too, handling evictions may not grasp the significance of 11 U.S.C. § 362(c), but thankfully, § 362(j) entitles landlords and lenders to secure “comfort orders” from bankruptcy judges adjudicating no 362(a) automatic stay exists, provided a § 362(c) scenario exists. Moreover, Section 105(a) of the Bankruptcy Code also supplies bankruptcy judges with discretion to issue comfort orders. Compare Marrama v. Citizens Bank of Massachusetts, 127 S.Ct. 1105 (2007) (recognizing broad authority granted to bankruptcy judges to take necessary or appropriate action). (How do you file a comfort order? Does the lender have to hire an attorney and argue before the judge? If the comfort order is granted does this mean the landlord can now evict or the lender can foreclose? How hard is it to get a comfort order?)

Additionally, we also have Local Arizona Bankruptcy Rule 1017-1(e), which states a bankruptcy judge may dismiss a bankruptcy, with prejudice, by prohibiting a debtor from filing another bankruptcy for 180 days, and automatically assigning to the same judge any new bankruptcy filed in violation of this prohibition.

It also can be argued that 11 U.S.C. § 105(a) and/or a bankruptcy judge’s “inherent power” permits a judge to practically do whatever he feels is necessary to end abuses of the Bankruptcy Code, provided that which they do does not violate any explicit provision of the Code. See Law v. Siegel, U.S. 134 S.Ct. 1188, 1194 (2014).

But again, individuals definitely can file bankruptcies, and use them for their benefit and to the detriment of their landlords and lenders, several times more than just once every 8 years. Moreover, this author has found that rarely will a bankruptcy judge enter an order keeping a serial filer in check without some landlord or lender having to not only request the judge intervene, but also, incur substantial attorneys’ fees while establishing this request warranted. (So, if they are a serial filer, the deadbeat can do it over and over and over again. How long does it take to get it premature dismissal of a bankruptcy and who requests this action? Once dismissed the deadbeat can walk in again and file it again and have another 30 days. Get dismissed and do it again, and again? And even if you get a judge to do Rule 1017-1(e),..they can do it again in 180 days?)

A landlord whose tenant and a lender whose borrower, has previously filed bankruptcy should not be surprised if they end up embroiled in a subsequent bankruptcy.

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You would think that the deadbeat would occur come costs from doing this over and over again, if they do it yourself what is the cost? But if they hire an attorney, they will cost them more and more. I had a borrower who did it themselves, but failed to pay the fees, Dismissed, so could she filed file it again and not pay the fees get dismissed, and do it again? 

You can contact David Knapper at 602-252-0809

 

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

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About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years. © 2020 Level 4 Funding LLC. All Rights Reserved.