real estate broker discussing with client
real estate broker discussing with client

Purchasing properties out of bankruptcy isn’t an altogether unheard of practice, according to lawyers serving bankruptcy clients in Boulder and other areas. Still, it’s one that is shrouded in mystery for many, as it’s not what one would consider typical. Still, there’s value in knowing more about how to navigate these waters, so today, we’re going to try to shed a bit of light on this unique scenario and give you a breakdown of the procedures you should know. Let’s begin.

First Things First: Who’s The Debtor?

While it might not be uncommon to hear about a piece of real estate being “in bankruptcy,” it’s actually more correct to say that a person or entity is in a bankruptcy proceeding, and that affects the property that they own or have an interest in. A “person” is a straightforward term to grasp, but for the sake of reference, know that an entity can be an individual, but doesn’t necessarily have to be so. It could also be a corporation, partnership, or similar assemblages of people—and they are the debtors who are going through the bankruptcy process.

What To Know Before Purchasing

For the purposes of this short guide, you should keep in mind that buying real estate in bankruptcy can come with some potential benefits. It can be a quicker and cleaner process, for instance, as long as you know what you’re doing, and for debtors, these sales offer a clear pathway to rapidly getting rid of a property without too much hassle. What’s more, bankruptcy sales are typically done “as-is” so there’s not going to be much going on in the way of negotiating over property repairs, documentation, etc.

An Overview Of Procedures

So, how does a bankruptcy realty sale work if you’re buying? There are variables to contend with, but as a general guide, here’s what you should keep in mind:

  • You’ll often need to begin by locating a bankruptcy property that you want to buy. This, while it seems simple, will require some detective work on your part (looking through online notices of sale and other databases).
  • Next, you (or your real estate lawyer) will need to reach out to the bankruptcy trustee to inquire about purchase of the property.
  • You’ll have to formulate terms for the sale, and in this arena, it’s important to remember that the bankruptcy trustee has an obligation to try to maximize the value of the property sale and pay all lenders in a satisfactory manner.
  • Your offer, therefore, will probably need to be one that will pay all interested parties involved. It may help to work with an experienced attorney who knows the ins and outs.

And what if you’re selling a property during a bankruptcy, as a debtor? In these cases, you’ll likely be turning the reins over to a bankruptcy trustee, who will then follow many of the same steps to sell your home that you would. There may be a few additional steps, including the need to get court approval for a broker and gaining authorization for a sale, but that’s all on the trustee. To top it off, once everything is wrapped up, you should be receiving your bankruptcy discharge and be ready to move on to the next chapter of your life post-bankruptcy.