QLD Bankruptcy - Legal Redress to Make Bank Accept the Offer?

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Tlee

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14 April 2017
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I am currently bankrupt. I have one property in my name and another property in a trust (corporate trustee) that I am no longer director/shareholder of (havent been since before bankruptcy).

There is, however, 1 loan over both these properties. These properties were both developments so each have a separate JV agreement & the JV partner has a second mortgage over both the properties.

A 7-day cash offer has been made on the property in my name. However both trustee & bank are saying they would rather do an auction in 8 weeks.

After failing to negotiate with either the bank (over 2 years) or my bankruptcy trustee to recognize the proportion of the loan that applies to these properties the bank has now stepped in and has enacted a mortgagee in possession.

My bankruptcy trustee is instructing them to sell the property in the trust/company structure first and reduce the loan by the full funds. It then wants the property in my name to be sold second and they then want to take the full funds. Obviously I have major issues with this in that the JV will not even get the funds back they put into the deal.

Do I have any legal redress to make the bank accept the offer that has been put forward (it is fair market value) or stop the trustee taking the full funds?
 

Rob Legat - SBPL

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When you became bankrupt, the house vested in your bankruptcy trustee. This means they're the legal owner of the property, and can determine how to deal with it. Any proceeds aren't going to go to you in any case.


Both the bank and trustee may be wanting to take it to auction as that is the 'traditional' way on ensuring market value is obtained (which most jurisdictions require). Unfortunately, the practical effect is that in many markets auctioning ends up achieving a lower return (but not all markets). In at least Queensland, sale by auction is the default requirement.


As for the 'proportion' of the loan which applies to the properties, the standard situation is that the bank will likely have an all monies mortgage - where there are no set proportions of the loan which apply to a particular security. Put another way, the bank can use all of any security to satisfy the debt on a 'first come, first used' basis.


From the trustee's point of view, they will want the property not in your name sold first. That way they're more likely to have any residual funds come to them in order to pay your creditors. The reasoning for this is along the lines of:


- Let’s say the bank loan is $500,000 and the JV loan is $300,000.

- ‘Your’ property sells for $600,000 and the ‘Other’ property sells for $400,000.


If your property sells first, the bank gets paid out and the JV gets paid the balance $100,000 under the second mortgage. No residual funds. The funds from the Other property clears the JV loan, with a residual of $200,000. This amount goes to the corporate owner of the land, as all loans are repaid. Your bankruptcy trustee gets nothing, unless it can make an argument that the corporate trustee has a liability to you for an equitable share in the property.


If the Other property sells first, the bank’s loan is reduced to $100,000 and the JV gets nothing. The corporate owner gets nothing. Then Your property is sold, clearing the bank and the JV loan. Your bankruptcy trustee gets the residual $200,000 to pay to the creditors.


The bank doesn’t really care what it sells first, on the face of it. The bankruptcy trustee obviously does, and has a duty to obtain the best outcome for your creditors. However, if the bank is a creditor of your estate, it will definitely want to see the bankruptcy trustee obtain the residual as it can then look forward to a distribution from the estate in due course.
 
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