Buying Distressed Real Estate Out of Bankruptcy

The current state of real estate markets is providing investors with significant opportunities to acquire distressed property at rock-bottom prices. However, those assets are often owned by a company in bankruptcy. So the question is: How exactly do you go about buying real estate out of a bankrupt estate? There are two important and practical rules to keep in mind when shopping for real estate that is subject to a bankruptcy court’s jurisdiction. First, any owner of property with equity remaining will almost always file for bankruptcy protection in an attempt to preserve that equity and to buy time within which to sell the asset, repay the lender and emerge from bankruptcy with its equity in hand.

Second, an owner with no equity in the property will seldom spend the money to file for bankruptcy protection (although occasionally owners with no equity may file in an often unsuccessful attempt to exert some leverage over the mortgage holder). Thus, it is more likely than not that the value of the property in bankruptcy exceeds the mortgage debt.