I keep seeing owners in foreclosure deed property to individuals with ongoing bankruptcy proceedings. You will see them deed them an interest in the foreclosing property a couple weeks or days in advance of the auction sale date. It is obviously a fraudulent bankruptcy protection play to delay the sale.
Most trustees will postpone if they come across any BK activity even if it appears to be blatantly fraudulent. But, in rare circumstances, the BK is filed minutes before the sale and the trustee doesn’t catch it and sells the property. Does anyone have experience buying a property in this situation and proving to the trustee the BK was fraudulent so they don’t rescind the sale??
Yes. In one instance it was a bad actor bidder who sent a copy of a bk. that was previously filed months before to the Trustee/bank. This was done immediately after the sale. They sent my check back to me. I demanded the Deed and sent them a copy of the alleged bk. filing. It was a bk. filed by someone else with an almost identical name - but lived 100 miles away, never listed the property in his schedules and the bk. was ready to be closed. I also pointed out if they check SS numbers - the alleged bk. person’s number was diff. than that of the foreclosee.
They sent me the Deed within a month. The debtor had already walked from one or two other units in the bldg.
Supposedly, the bk. code says if a property is sold to a BFP for value, the sale can be declared valid. In practice, if the Bk. is filed just before sale, they will send your money back - unless it is the 3rd filing. There is no automatic stay on that filing - you have to ask the JUdge to sign an order.
I am seeing this all the time now. Last one it looks like the borrower deeded the house into two corporations. Then the borrower, as a creditor, filed in involuntary petition on one corporation. That ran its course over 6 months and was dismissed. The borrower then filed an involutary petition on the second corporation. By the time that runs its course, I suppose they will file on the first corp again or transfer to new corporations and do it all over. What a clever way to own a house for free, until the Feds figure it out and start handing out jail time.