Headed for the Abyss: Top 10 Things for the Real Estate Practitioner to Know About Bankruptcy



Has the DFW area dodged the real estate bubble bullet? Some would say it has,2 but it may still be too soon to tell. One thing is clear, there was certainly a noticeable softening in the residential real estate market in the second half of 2006.3 And while some have suggested that a bit of moderation is long overdue and healthy,4 it is hard to ignore the significant spike in home foreclosures that took place during the year.5 In this regard, according to at least one report Texas experienced a 20% increase in foreclosure postings in 2006.6 In Collin County, alone, there was a 61% increase in comparison to 2005.7 Nationally, the picture looks worse. In the third quarter of 2006, for example, nearly 5% of all U.S. mortgage payments were delinquent.8 And at least one analyst has projected that median sales prices for existing homes will decline nationally in 2007, which if proven to be correct, will be the first such decline since the Great Depression.9

With these statistics in mind, it is likely that the day will come when every real estate client will have to face the problem of dealing with a bankruptcy issue. Given the inevitable journey into the bankruptcy abyss, it is important for the real estate practitioner to have a general understanding of certain basic bankruptcy principles and certain provisions of the Bankruptcy Code (the “Code”)10 to be in a position to protect and provide some baseline advise to the client. The purpose of this paper is to provide the author’s top ten things to know about bankruptcy to prepare the real estate practitioner for the trip.11

# 10 — Bankruptcy Professionals Speak In Tongues

One of the first things that a real estate lawyer is likely to encounter is the seemingly foreign language used by bankruptcy professionals in their discussions about the bankruptcy case. To assist the outsider in the process, the following table lists some of the more common lingo and translations: