Simply The Best Loans

Every real estate investor is looking for a “deal”. A property priced well below market, usually as a result of some financial difficulty of the seller, such as potential foreclosure. Financially-strapped sellers will often sell their property 10, 20, sometimes 30 percent or more below it’s appraised value to avoid foreclosure or to cash-in on whatever equity they can get to deal with their financial crisis.

An investor client of mine recently shared the following information with me. While discussing a potential purchase with an attorney, he was told that the recent changes in bankruptcy law could create a risk to an investor that purchases property from someone who may be on the verge of filing for bankruptcy protection. While new laws are sometimes unclear until tested in court, it’s always prudent to investigate what new risks may be posed by changes in the law.

As it was presented to my client, the new bankruptcy laws may create potential risk for investors who buy property 10% or more below its market value. The new laws indicate that there is potential risk if a seller sells his/her property more than 10 percent below it’s current market value and then files for bankruptcy protection anytime within the next 10 years, the bankruptcy court may have the option of pursuing the buyer for the difference between the sale price and the appraised value at the time of the sale.

An example: An investor buys a house valued at $100,000 for $70,000 and the seller files bankruptcy anytime within the next 10 years, the buyer could have to pay the bankruptcy estate the full difference of $30,000.

Before the purchase of any investment property, I recommend that investors find professional legal and financial advisors that have experience with investment property to assist them. When considering an investment purchase that has any unusual circumstances surrounding it, it is best to carefully review any legal or financial ramifications with your advisors first.