What to do if a co-owner is threatening to file bankruptcy during a short sale?

My friend and I own a property. It was my homestead but not hers. Since it was underwater, we submitted for a short sale. The banks just approved the short sale. Currently, we wait to have a buyer, but my friend is threatening to file bankruptcy just to protect herself from creditors. Since that will screw the short sale up, what can I do?

Asked on October 13, 2011 under Real Estate Law, California

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Potentially the bankruptcy filing by your friend could delay the closing of any sale of the property that you are writing about in that the filing of a bankruptcy protection will cause an automatic stay of all proceeding concerning your friend. However, there is always the possibility of one getting relief from the automatic stay as the result of the bankruptcy for the property's sale.

I recommend that you first consult with a real estate attorney who has experience in bankruptcy matters about your question further. He or she can assist in structuring a sale of the property subject to short sale approval by the lender.

You need to realize that in California, there is a statute effective July 2011 holding that any lender that receives any money from a short sale cannot go after the former property ower for any deficiency.

Good luck.


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