I just closed on a park last week and inherited a lease to own contract. The tenant who signed the contract filed for bankruptcy and hadn’t made a payment to the previous owner in months. They are making their lot rent payments but not the home payment. I don’t believe the previous park owner is pursuing to collect what is owed on the home. I’m considering charging them home rent since they defaulted on their home loan. Or evicting them (if that’s possible), cleaning up the home and then selling the home on a Rent Credit program.
Does anyone have any experience this type of situation? If so, how did you handle it?
Bankruptcy (BK) situations are highly complex and any actions you take must be in strict accordance with Federal law and local jurisdiction procedure. There are many issues here. Since the BK has been filed for a period of time, was the prior owner named as a creditor? Has the time for filing opposition passed? How much is owed on the contract? You will need an attorney in this situation for any claim on the contract.
One thing is quite clear. You cannot make any demands for payment on the contract. The good news is that you are still getting the lot rent.
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I know there are also some laws on evicting within a certain amount of time the bankruptcy was filed, so you will need to check with an attorney whatever action you take is above board.
But in your scenario I would evict at the earliest legal moment for nonpayment.
It is really odd they are still paying lot rent - usually you see people just stop paying completely. That’s another thing to ask the attorney. This could be a professional squatter who knows how to drag out an eviction.
I should have added that you need to find out whether there really is a BK petition filed. People sometimes just say that - similar to saying “I am going to take this to the Supreme Court.”
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You bought a park and now get to learn bankruptcy law, could be worse. Did this come up in DD? If this was not disclosed you may have action that could be taken with the previous owner. The home may be worth something but not to you for a while. You may be able to get any money you payed for that home and just return the contract to the seller and let it all be his problem.
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I speak from some experience here as our company has a MHP & defaulted mortgage business (with a couple hundred mortgages). I manage both operations and deal with bankruptcy on over 60% of our loans. So questions and comments:
Questions:
- Have you carefully read the LTO contract? Has a BK atty reviewed it?
- Is this a BK 7 or 13 (or other)
- Did the person list the home in their voluntary petition as a debt?
- How long ago did they file? Are you past the deadline to file a proof of claim? Your RTO home may not be eligible as its technically not a loan - I’m not sure - need an attorney to review.
Comments:
- If they are in middle of BK you cannot evict. They have an automatic ‘Stay’ which legally protects them
- You can try to get a relief from stay, then evict. Note that you need an atty and this will cost you.
- BK7 usually last around 6 mo but a 13 may last 5 yrs . Your strategy will vary accordingly
Opinions
- Pending legal review and how the RTO contract is written, you may want to amend your rules that ‘Rent’ consists of all payments, incl fees, charges, home and lot rent. Lot rent is applied last. Then is the person is late on lot rent you may have legal rights to evict based on non-payment of rent after getting relief from stay.
Note: Check with your state MH laws as this varies.
- People in the middle of BK are ‘protected’ from collectors. Do NOT try to collect from them directly as this can be violation of Federal BK laws. You are better contacting the BK trustee and the tenants BK attorney. We NEVER contact a borrower who is in the middle of a BK.
If you have more questions or info, let me know. I know this is not great news but this is not an ordinary issue.
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Thanks everyone for your input. I have an attorney tending to this. I’ll share the outcome.