Pilot bankruptcy program encourages short sales

The program speeds sales of property surrendered in bankruptcy by averting foreclosure
October 10, 2015 12:00PM

The pilot program began in September 2014.

Kenneth Welt, senior U.S. bankruptcy trustee for the Southern District of Florida, sees promise in a pilot program to sell distressed real estate as part of bankruptcy cases and bypass foreclosure.

In the last six months, Welt has closed the sale of 15 houses surrendered in bankruptcy instead of foreclosure. He said recently filed bankruptcy cases could lead to five additional house sales.

“We could sell them every day,” Welt told the Daily Business Review. “I have a list of about 500 people who say, ‘We want to know what you have when you have it.'”

Welt said one such sale in what had been a no-asset bankruptcy case recently generated proceeds that partially covered the unpaid balance on a first mortgage and funded $13,000 of payments to unsecured creditors.

Before the pilot program began in September 2014, Welt said lenders generally were unwilling to dispose of bankrupt borrowers’ real estate in short sales instead of pursuing foreclosures in state court.

Last year, Welt got permission from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and several leading lenders to create a program to speed sales of property surrendered in bankruptcy cases.

Participation in the pilot program requires that some of the property-sale proceeds go to unsecured creditors.

 Fannie Mae and Freddie Mac are participating in the pilot program in the federal bankruptcy districts for Southern Florida, Middle Florida, New Jersey and the Eastern New York. [Daily Business Review] — Mike Seemuth