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If I sell real estate on contract for deed can the buyer file bankruptcy to get out of paying the contract?
Asked on July 17, 2018 under Real Estate Law, Oregon
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 3 years ago | Contributor
While someone has to qualify for bankruptcy (their situation, their assets and income vs. debts and obligations, etc. have to meet certain criteria) in order to file successfully for bankrupty, assuming that someone is eligible for bankrupty, then yes, they can use bankrupty to get out of some or all of the payments due under the contract. However:
1) If the seller did not transfer title yet (i.e. it is only transferred when the last payment is made), the buyer will not get the property without paying everything--the seller will keep it.
2) If title was transferred by the seller retained the right to foreclose if not all payments are made (the way banks do in mortgages), then if the buyer does not pay, the seller can take the property back. The bankruptcy process will delay and complicate matters, but if the sale agreement included the right to foreclose, the seller *will* be able to regain the land--the buyer cannot keep it without paying.
This is why when you sell on a contract or over time, always either don't transfer title until the last payment is made or make sure you can foreclose.