Bankruptcy Sales and Real Estate

Buyers looking for a bargain often turn to foreclosures and bankruptcies as the promised land of the great real estate deal. They’re not for everyone and they’re don’t necessarily play by the rules that we are used to with the typical real estate transaction.

This is what recently happened with one of our buyers. Long story short, they don’t get the house. Read on for the rest.


The house was new on the market, clearly under priced in our hot market. We toured the house and made an offer at full price. The seller was the bankruptcy court trustee, not the former owner whom is now referred to as “the debtor.” The offer was accepted but unlike a standard offer where the transaction becomes a pending sale, the offer becomes “bumpable.” Once the offer was accepted, the court goes through a 22 day notice period where the trustee can accept another offer of better or equal terms that, in this case, was at least $15,000 over the accepted price of the existing offer!

Eighteen days passed until an offer came in. By that time, our buyer had an inspection and waived the inspection period, gone through the entire loan process- loan documents were sitting at title waiting to be signed and transferred the required funds to close to the title company. The other offer matched our closing date, had no financing or inspection contingencies and providing it closes on the same date ours was to close, is considered of equal terms.

Our buyer had a choice. Under the terms of the sales agreement, the higher bid does not simply get the property but instead, it goes to auction between the interested parties. Our buyers chose not to make a higher bid and terminated their transaction. In theory, our buyer could have waited until the closing date to see if the other buyer was able to perform on the contract- if they don’t they will forfeit their earnest money. If they other buyer did not close, they could have closed at their original price. They made the decision to move on and now have an accepted pending sale on a different property.

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