Short Sales and Bankruptcy

I recently read an article which stated that a short sale cannot proceed if the homeowner is in bankruptcy. Experienced Metro Atlanta Short Sale Realtors know that this is incorrect.

If a homeowner is in an active bankruptcy case, he can short sale his home. However, the fact that he is in bankruptcy adds an additional set of steps to an already complex transaction. In order to sell a home while in an active bankruptcy, the homeowner (debtor) must obtain permission from the bankruptcy court before he can sell the home. This is true whether the transaction is a straight sale or a short sale.

So, if you wish to short sell your home and are in a bankruptcy or file bankruptcy after listing the home, I am going to give you a few tips to help make the process a little smoother.

First, tell your real estate agent that you have filed bankruptcy.  It is critical that you disclose your bankruptcy to your real estate agent so that she can take the appropriate steps to ensure that there are no unexpected delays once the short sale is approved by your lender.  Moreover, the purchase and sale agreement should contain a provision making the sale of the property contingent upon approval of the bankruptcy court and your lender.

Next, give your real estate agent written authorization to speak with your bankruptcy attorney.  There is important information that your real estate agent and bankruptcy attorney will need to share with one another.  For instance, your real estate agent will need to provide a copy of the purchase and sale agreement to your bankruptcy attorney who will, in turn, provide it to the bankruptcy court.

You should also give your real estate agent authorization to speak with the bankruptcy trustee.  Depending on what issues may arise, it may be necessary for your real estate agent to discuss the status of the sale of your home with the bankruptcy trustee.

Before the sale will be authorized by the bankruptcy court, your bankruptcy attorney must file a motion with the court requesting authorization to sell the property and a hearing will be held within about 30-45 days.  At the hearing, the bankruptcy court will determine whether the sale is fair to your creditors and will either approve or deny it.

It's important to keep in mind that the bankruptcy court will want to see proof that the short sale has been approved.  Additionally, your lender will want to see proof that the bankruptcy court has authorized the sale of the property.

If you are in an active bankruptcy and wish to sell your home, give me a call to schedule a no obligation consultation.  I can be reached at 678-446-5925.