Caution for Real Estate Buyers

In the bankruptcy case of O’Brien, Patrick S. and Denise L.; In re (Jensen v. O’Brien), a land buyer may lose his investment because of failing to practice due diligence before buying the land.

The details of the bankruptcy case:

The plaintiff agreed to buy real estate that the debtors listed for sale on the Web site craigslist. The court described the transaction as being unorthodox. It was completed without the services of an attorney, real estate agent or title company. The plaintiff agreed to pay $175,000 for the property. He paid $75,000 up front and agreed to make monthly payments of $982.90, which the debtors were to apply to an existing mortgage on the prop­erty. When the mortgage was satisfied, the debtor-husband agreed to transfer the deed to the plaintiff. The plaintiff made seven monthly payments prior to the debtors’ bank­ruptcy filing. After the bankruptcy filing, the plaintiff filed a three-count complaint alleging that he held a claim against the debtors that was excepted from discharge by Section 523(a)(2) and (6). The court granted summary judgment to the debtors on two of the counts.

The irony of this case is that if this land buyer is handling his other financial affairs in the manner in which this land purchase was handled he may find himself also facing bankruptcy soon. The bankruptcy court found two of the three complaints invalid and trial is pending for the third complaint which alleged that the seller misrepresented his ownership of the land.  However, if the debtor is allowed to discharge this debt, the land buyer will be out of a significant amount of cash.  Right now there is an entire subset of “investors” buying land and property in this manner.  But the reality is that during this recession, these buyers may be especially vulnerable to financial disaster when things go wrong. For those who are trying to capitalize upon the current crisis, please proceed with caution, bankruptcy may be just one bad transaction away.