BKY

Bankruptcy

When a party to a transaction or in the chain of title has been a debtor in bankruptcy proceedings, the transaction generally must be authorized in the bankruptcy. Otherwise, the foreclosure, sale, or mortgage may not be valid.

Requirement

BKYR01 STG

Bankruptcy Applies – Require Bankruptcy Documen

The effect of bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires copies of the docket sheet, petition with schedules, and other satisfactory final nonappealable orders, plans, or documents in the bankruptcy proceedings authorizing the contemplated transaction. At the time the Company is furnished these items, the Company may make additional requirements for exceptions.
Comment: This requirement requests for relevant bankruptcy documents, whether the bankruptcy is pending or closed.

See Underwriting Manual

BKYR02 STG

Bankruptcy May Apply – Court Order or Proof not

The Company requires for review copies of petition with schedules, and docket sheet, and (i) satisfactory final nonappealable order from the bankruptcy court authorizing the proposed transaction in the bankruptcy proceedings of ___________ or (ii) a satisfactory affidavit and other evidence for review showing that _______________ is not the debtor named in the bankruptcy proceedings. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: This requirement requests a court order authorizing the transaction or proof that the owner is not in a bankruptcy.

See Underwriting Manual

BKYR03 STG

Bankruptcy – Order to Sell

The effect of Pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires for review copies of the docket sheet, petition with schedules, motion, certificate of service, and a final and non-appealable order of the Bankruptcy Court authorizing the sale of the land. At that time, the Company may make additional requirements or exceptions.
Comment: This provision requires a court order to sell the land. Numerous requirements exist for sales free and clear of liens.

BKYR04 STG

Bankruptcy – Sale in Involuntary Proceedings

The effect of bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires copies of the docket sheet and petition with schedules. The Company requires for its review a copy of a satisfactory final non-appealable order of the bankruptcy court authorizing the sale after the involuntary proceedings were commenced. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: If involuntary proceedings are commenced against the seller, the Company requires bankruptcy court approval of the sale.

See Underwriting Manual

BKYR05 STG

Bankruptcy – Land not Scheduled

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires a satisfactory court order reopening the administration of the land in the bankruptcy proceedings of the owner and a copy of a satisfactory final non-appealable court order authorizing the sale or abandonment of the land, after notice to interested parties. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: If the land was not scheduled and the bankruptcy was complete, the Company requires the bankruptcy to be reopened in order to deal with the land.

See Underwriting Manual

BKYR06 STG

Bankruptcy – Exempted Land

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires copies of the docket sheet and petition with schedules. The Company requires satisfactory evidence that the land was exempted in the bankruptcy proceedings and that the remaining interest, if any, in the land was properly abandoned. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: If the land was scheduled as exempt, the Company requires evidence that it was fully exempted. If only an equity or portion of the land was exempted, the remainder must be abandoned or sold by court order.

BKYR07 STG

Bankruptcy – Abandonment

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires for review copies of the docket sheet, petition with schedules, motion, certificate of service, and a final and non-appealable order of the Bankruptcy Court abandoning the land. At that time, the Company may make additional requirements or exceptions.
Comment: If the land has no equity, it may be abandoned by the trustee or debtor by following the required procedure. The stay may still prevent a foreclosure.

BKYR08 STG

Bankruptcy – Confirmation

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires copies of the docket sheet, petition with schedules, plan, and final non-appealable confirmation order, if any, in the bankruptcy. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: After the plan is confirmed in a Chapter 11, 12, or 13 proceeding, the debtor may sell land if the plan revests the land in the debtor and does not limit authority to sell. It must not be the principal asset (unless it is the debtor’s residence). If the case is a Chapter 12 or 13, the Company also requires the trustee’s consent.

BKYR09 STG

Bankruptcy – Lift of Stay

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires for review copies of the docket sheet, petition with schedules, motion, certificate of service, and a final non-appealable order of the Bankruptcy Court lifting the stay. At that time, the Company may make additional requirements or exceptions.
Comment: The filing of the bankruptcy creates a stay: it prevents sales, foreclosures, and recordation of some instruments, such as Sheriff’s or Trustee’s Deeds. The stay must be lifted to proceed.

BKYR10 STG

Bankruptcy – Annulment of Stay

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires for review a copy of the docket sheet, petition with schedules, motion, certificate of service, and a satisfactory final non-appealable order annulling the stay to allow the foreclosure reflected by that deed recorded _____________. At the time the Company is furnished these items, the Company may make additional requirements or exceptions.
Comment: If the foreclosure during a bankruptcy was not authorized by a lift of stay, the stay may be annulled retroactively by court order to allow the foreclosure.

BKYR11 STG

Bankruptcy – Lift of Stay to Allow Deed Recordi

The effect of pending bankruptcy proceedings of _________________, Debtor in Case No. ____________. The Company requires for review a copy of the docket sheet, petition with schedules, motion, certificate of service, and a satisfactory final non-appealable order lifting the stay to file the deed. At the time the Company is furnished this item, the Company may make additional requirements or exceptions.
Comment: If a foreclosure occurred before a bankruptcy and the Sheriff’s or Trustee’s Deed was not recorded (if at all) until after the bankruptcy, the filing may violate the stay. The foreclosure of an involuntary lien also may be a fraudulent transfer.

BKYR12 STG

Tax Foreclosure or Deed in Lieu Within One Year

The record reflects that the land was the subject of a tax foreclosure sale or deed in lieu of foreclosure, evidenced by deed filed for record within the past year. The Company requires satisfactory evidence that the consideration at the tax foreclosure sale or conveyance was at least 70% of fair market value.
Comment: If a tax foreclosure or deed in lieu was recorded within the last year (or redemption rights ended then), the sale may be set aside in a bankruptcy filed within that one year period. The Company generally compares the foreclosure bid price and new sales price to determine if an adequate amount was paid. The Company does not make this requirement on single family residences. The Company no longer makes this requirement on nonjudicial or judicial mortgage foreclosures because BFP v RTC overruled Durrett.

Exception

BKYX01 STG

Deed in Lieu or Tax Sale Exception

Any claim by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, in any bankruptcy proceeding of ____________ that is filed within one year after ___________.
Comment: Use this exception if a tax foreclosure, deed in lieu, or end of tax sale redemption occurred within the last year unless the Company determines an adequate amount was paid in accordance with the Company’s guidelines or that the land is a single family residence.

BKYX02 STG

Broad Creditors’ Rights Exception

Any claim by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws.
Comment: This is the broad creditors’ rights exception. It may be used if the current or prior transaction (such as the refinanced loan or a foreclosure) creates a creditors’ rights issue.

BKYX03 STG

Creditors’ Rights Exception – 1990 Owner’s Poli

Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this Policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws.
Comment: This is the creditors’ rights language appearing in the 1990 Owner’s Policy. It applies to the insured transaction. This exception, or the 1992 language, must be added when issuing the 1970 Policy unless the Company consents.

BKYX04 STG

Creditors’ Rights Exception – 1992 Owner’s Poli

Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this Policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that is based on:
(a) the transaction creating the estate or interest insured by this Policy being deemed a fraudulent conveyance or fraudulent transfer; or
(b) the transaction creating the estate or interest insured by this Policy being deemed a preferential transfer except where the preferential transfer results from the failure:
 (i) to timely record the instrument of transfer; or
 (ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.
Comment: This is the creditors’ rights language appearing in the 1992 Owner’s Policy. It applies to the insured transaction and is narrower than the 1990 language. The 1990 language should be used or paragraph (b)(i) should be deleted or separate exception made if the deed recording was delayed. Either this exception or the 1990 Owner’s Policy language must be used when issuing the 1970 Policy unless the Company consents.

BKYX05 STG

Creditor’s Rights Exception – 1990 Loan Policy

Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this Policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws.
Comment: This is the creditors’ rights language appearing in the 1990 Loan Policy. It applies to the insured transaction. This exception, or the 1992 language, must be added when issuing the 1970 Policy unless the Company consents.

BKYX06 STG

Creditors’ Rights Exception – 1992 Loan Policy

Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this Policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that is based on:
(a) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or
(b) the subordination of the interest of the insured mortgagee as a result of the application of the doctrine of equitable subordination; or
(c) the transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure:
 (i) to timely record the instrument of transfer; or
 (ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.
Comment: This is the creditors’ rights language appearing in the 1992 Loan Policy. It applies to the insured transaction and is narrower than the 1990 language. The 1990 language should be used or paragraph (c)(i) should be deleted or separate exception made if the mortgage recording was delayed. Either this exception or the 1990 Loan Policy language must be used when issuing the 1970 Policy, unless the Company consents.

BKYX07 STG

Court Order Not Final

Lack of finality of that bankruptcy court order dated __________ in Case No. __________ and the effect of any reversal, modification or remand on said order.
Comment: If a bankruptcy court order (e.g., to confirm or to sell) is not yet final and nonappealable, the Company does not rely upon the “mootness” doctrine that sometimes allows a buyer or lender to take free of the appeal. The Company instead excepts to lack of finality.

BKYX08 STG

Unrecorded Bankruptcy

Any claim because or arising out of any bankruptcy proceeding that is not disclosed by notice pursuant to 11 U.S.C. § 549(c).
Comment: When issuing a trustee’s sale guaranty on an assignment of mortgage by a noninstitutional lender or to a lender at or prior to foreclosure, the Company must consider this exception since those parties will not take free of the unrecorded bankruptcy.

BKYX09 STG

Delayed Recording

Any claim by reason of the operation of federal bankruptcy, state insolvency, or similar creditor’s rights law because of the failure to timely record the instrument of transfer to the insured.
Comment: If the Company issues the 1992 Owner’s or Loan Policy, the creditors’ rights exclusion does not apply to claims because of delayed recording of the mortgage or deed. Instead, the Company requires a separate, additional exception if there is a delayed recording.

Schedule A

BKYS01 STG

Vesting in the Bankruptcy Estate

The Estate of __________, Debtor in Case No. ____________, _________, subject to the requirements and exceptions set forth herein.
Comment: The filing of the bankruptcy creates a bankruptcy estate that technically owns the land until the land is sold, exempted, abandoned, or revested in the debtor by a plan.

See Underwriting Manual

BKYS02 STG

Vesting Subject to Bankruptcy Proceedings

__________________, subject to proceedings pending in the United States Bankruptcy Court.
Comment: As an alternative to showing title in the bankruptcy estate, or where that is not appropriate, Schedule A may show the record owner (as “debtor”) or trustee (in a Chapter 7 or 11) and then refer to the bankruptcy proceedings.

See Underwriting Manual