|Foreclosure And The Durrett Rule
It's probably happened to you...
Folks learn that you know something about real estate investing and they eagerly ask you about
buying foreclosure property.
The general assumption is that they can buy a beautiful home at a deep discount at a
Their smiles fade when you explain that they will have to pay cash on the spot and they must
be able to research title to be sure they aren't buying trouble.
But wait... there's more... There is also a little something called the "Durrett
Oh boy... can that be a like a knife in the back. For example: You spend the time and effort
scouting out a nice home scheduled for foreclosure auction. You search title and scare up the cash to
have in your pocket when you go to the sale.
Hurray... You have the winning bid at the foreclosure sale and buy the home at about a 40%
discount to market value. After doing your happy dance you spend the next few weeks doing needed fix
up. Then you find a renter and settle back to collect rents for the next few years.
But wait! Who's that knocking on the door.
Why it's a nice man who says he is taking the home away from you. Who is this pretentious
devil? He is the dreaded... BANKRUPTCY TRUSTEE!
Shortly after the original homeowner lost his house he filed for bankruptcy. The wheels of
the bankruptcy court grind slowly and the trustee just recently learned that the house had been sold
at the auction.
And... The foreclosed upon owner had a nice hunk of equity in the home when he lost it. Uh
oh.. get ready for this. It is trustee's job to capture that equity so it can be distributed among
the bankrupt home owner's creditors.
Can he do that?
Yes! Under the power granted by The Durrett Rule the trustee can show you the door and claim
the home in the name of the bankruptcy court.
You, see the bankruptcy court has more power than Edison Electric. It can do about anything
it wants when it comes to assets and creditors.
Oh sure, months later, after a battle in the bankruptcy court, you should be able to recover
the money you paid for the home. Of course... no interest is paid on the money for the time it is
tied up in court and you will not be able to recover the fix-up costs or attorney fees needed to get
your money back.
Buying at foreclosure sales is not for sissies! Stick to an easy money tactic... buy in the
Back to Real Estate Investing Articles
Author of Best Selling book "The Complete Guide to Judgment Investing" Mark Walters,