Bankruptcy of Land Flippers

Besides the tax basis reduction problem that is set forth Bankruptcy of Rent Houses, land flippers have a hidden issue, and that issue is the location of their creditors.

Every sale on assumption creates creditors. That creditor is the creditor who made the original loan. If the land flipper assumed the loan when he purchased the house or the raw land and later sold the property on assumption, he remains liable to 1) the original lender, 2) the previous seller, 3) the title insurance company and 4) potentially all other previous owners under the same note. And if all of these parties do not have notice of the bankruptcy, they may not be discharged.

Finding the addresses of all of those parties can be a daunting task. One way around it is public notice of the bankruptcy.

Every sale under a new loan that pays off the old loan(s) of course cuts off all previous creditors, who then do not have to be noticed in a bankruptcy.

Charles Chesnutt