BANKRUPTCY AND REAL ESTATE TRANSACTIONS
Any bankruptcy case instituted prior to October 1, 1979 is governed and continues to be governed by the Bankruptcy Act of 1898, as amended. Any case instituted on and after October 1, 1979 is governed by the Bankruptcy Code of 1978.
Upon the filing of a bankruptcy petition, an automatic stay comes into existence which stays or stops virtually all actions, including foreclosures, against the debtor and his property or property of the bankruptcy estate.
All of the debtor's property becomes part of the bankruptcy estate as of the date of the filing of the petition. The property can leave the estate by being declared exempt, by abandonment, by sale or by a re-vesting in the debtor upon the confirmation of a plan in a Chapter 11 or 13 case under the 1978 Code.
It is difficult to generalize under the 1978 Bankruptcy Code as to what documentation is needed for a particular transaction. Whenever a bankruptcy is involved in the transaction that you are to insure and you are not certain as to what requirements to make, you should contact the local office for guidance.
Some factors which will be considered are as follows:
Under the Bankruptcy Code, a bankruptcy trustee has the right to challenge any
transfers or foreclosures of the debtor's property within the one-year period
preceding the filing of the bankruptcy. These transactions can be challenged based on the concept that the foreclosure sale or transfer of the property was fraudulent in nature care must be taken when insuring a transaction coming through a foreclosure sale, or a deed in lieu of foreclosure.
Understanding the law of bankruptcy (Title 11 of the United States Code) is difficult, but if the proper procedures and guidelines are followed, these titles are frequently insurable.
See Massachusetts Conveyancers Association Title Standards No. 30.