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President’s Corner: September 2017

Well, another summer has come and gone and very quickly, as usual, fall is right around the corner which is my favorite time of year. Most of my friends can’t stand fall. The days get shorter, the end of Daylight Savings Time is near, and fall is a reminder that winter is coming. (not intended as a Game of Thrones reference).

Anyway, for me, fall is a time to reflect on the year so far. To look at what we have done well, where we have fallen short and can improve upon, and what training needs to be done in the off season. In addition, I try to think of issues that caused problems on deals and how better we can handle them through training and education.

One such issue relates to Bankruptcy law. Usually, when a closer sees a reference to a Bankruptcy on their title commitment, their first reaction is to hide under their desk and call in sick the next day. I admit it is confusing and highly technical and something on which I claim no high level of expertise. I do know however, the instances where real estate titles are affected by Bankruptcy issues.

Here is the most common situation and it never makes sense when I try to explain it to a Seller who has gone through a Bankruptcy so wish me luck trying to explain it here. The scenario is that an individual or a couple owns a house, has a lot of debt, not enough income and they have a judgment or judgments against them or delinquent debts. As most of you hopefully know, the judgments are liens against the real estate that’s why you see them on title commitments (but hopefully not too often). Anyway, the homeowner(s) file bankruptcy and eventually get “discharged” from liability of these debts even the ones that are judgments.

Time goes by and they want to sell the house and get a sales contract. Title is done and the commitment shows the judgments as liens against the property and everyone goes berserk. The seller is totally caught off guard. Why? Because they filed Bankruptcy so that they could get out from under their debts and have a fresh start. That’s what the Bankruptcy laws are there for. The seller has been “discharged” from liability so how can they be forced to pay the judgments? And, to be fair, this issue is totally counter intuitive to a seller and very upsetting because it is always such a shock.

Here’s the general rule. If a judgment is a lien on real estate prior to the seller filing Bankruptcy, the lien, since it is against the property itself, not the person, remains even if the property owner is discharged from the personal obligation to pay the judgment. In other words, though the seller in this case will never have his/their property levied upon or their wages garnished to pay the debts, the judgments, however, will have to be dealt with for the seller to be able to pass clear title to a buyer. (This is yet another good reason to have title checked at the time of the listing so the seller is not blind-sighted by this issue.

So that’s my story and I’m sticking to it as they say. Have a great month and don’t knock fall. Each season has something to offer.