Filing Bankruptcy & Selling your Home?
Below is today’s opinion from Annie Fitzsimmons, the attorney who answers questions for the Washington Association of REALTORS® Legal Hotline. If you or someone you know is facing a hardship with their property, please talk to an expert to determine the best way to proceed forward. For additional questions or information, please contact Jen at (206) 293-1005 or send me an email to jen@hudsoncreg.com.
Question:
Property is listed and the owner just filed for bankruptcy. Can listing agents continue to list the property and try to find a buyer?
Answer:
When a bankruptcy case is filed, ALL property comes under the immediate control of the appointed trustee. What happens to the further disposition of that property depends on a number of things.
First, if there is equity in the listed real property, i.e., meaning that there is enough to pay all recorded mortgages or liens in full, costs of sale and the debtor’s homestead exemption amount, then the trustee will likely assert control over the real property. The trustee literally steps into the shoes of the debtor and has sole discretion to sell the property and handle its marketing. The trustee can choose to retain the current listing agent or appoint one of trustee’s own choosing. In either case, a court order is required to approve the appointment of the listing agent. Any pre-filing listing agreement is voidable. The trustee will likely execute a new agreement either with the current agent or the agent of trustee’s choosing. If the trustee chooses to appoint another own agent—which is more likely to happen than not because of long-term working relationships with between trustee and another agent already familiar with the bankruptcy process—the previous listing agreement is rejected. The initial listing agent may have a claim against the bankruptcy estate for reasonable expenses. Further consultation with legal counsel is recommended for agent and broker to determine if there is any point to proceeding with a claim for recovery of expenses.
Second, if the trustee determines after initial evaluation that the property value is not sufficient to leave any net proceeds for the bankruptcy estate after a sale, then the trustee will not take control of the property and either specifically abandon it or otherwise file a “no asset” report if trustee further determines that there are no assets available to liquidate for the benefit of creditors. In that case, the property reverts to the debtors’ control, and debtor is free to continue with whatever disposition of the property they choose, to include retaining the services of their original listing agent. It may still be necessary to communicate with debtors’ counsel at that point to insure that proper procedures are followed in order to sell the property and obtain compensation for services rendered.
Finally, the best advice for the original listing agent to make prompt contact with the trustee to determine what trustee’s intentions are with the property. It is essential to understand that once the bankruptcy has been filed, the listing and marketing of the subject property is substantially changed.
Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.