Bankruptcy advice, building a home in another the state and the builder went under.

In My Humble Opinion
1

So my parents who live now in Minnesota are building their retirement home down in Arizona. They just found out yesterday that the builder is filing Chapter 11 bankruptcy and they may have lost $40K that they’ve put down to start the construction.
Any advice?
Should they get a lawyer here in Minnesota or and Arizona one ?(I’m assuming they can’t handle this without one)

(sorry for being sketchy on the details right now, let me know if you need more info).

Many thanks,
stpauler

2

My advice is that they consult with an attorney where they are and do what s/he says.

3

I own a home in Arizona, and this is more common than you would imagine. Here is a list of things your parents need to do.

  • Contact an attorney in Phoenix, or wherever they are building.
  • Make sure the lawyer is a real-estate lawyer.
  • Try and have your parents bid out the job to another builder. We are talking about Arizona here, the land of Urban Sprawl. There are plenty of builders.
  • The lawyer should take care fo the 40K changing hands. Because if your parents can not get the money back or transferred to another builder, they will need the lawyer.
  • Make sure the Lawyer, figures the cost into the moeny changing hands. Thats all your parents would need at a time like this is to be slapped with a 10K bill from the lawyer.
    -This happens a lot and there are lawyers that do this kind of thing. We have our real-estate lawyer through Ross Lyon - a real-estate office located in Phoenix. But I believe they deal houses state wide.
    They are not totally screwed yet. But make sure they get a lawyer right away. If they are worried about cost, remember what I said about figuring it in after the new builder is chosen…
  • They are in a good position because it’s the builder going under not the people building the house…
4

After sending my mom the link to this thread:

Thanks Philosphr !

5

I’m a bankruptcy professional, and quite frankly, I have no idea what Philosphr is talking about.

If the firm has already filed a petition to begin Chapter 11 bankruptcy proceedings, then you aren’t getting paid right now, period. That’s the point of bankruptcy: it permits the corporate to reorganize to pay as many of its creditors as possible and continue its business.

You need an attorney with bankruptcy, not real estate experience. Your mother will probably have to file a proof of claim in order to be part of the proceeding.

I am not a lawyer, so the only advice I would give is to get an attorney immediately. If you miss the bar date, that is, the date past which no more proofs of claim can be filed, your mom could be in a complicated situation.

6

IANA bankruptcy professional like Maeglin, I’m just a commercial real estate agent, but I have seem bankruptcies proceed and I also am not really sure what Phlosphr is talking about re the “40K changing hands”. Per Maeglin’s note if an entity declares Chapter 11 whatever funds were available to do the work are typically exhausted or otherwise gone and reorganization is among the few options before complete liquidation bankruptcy (Chapter 7). Maeglin can correct me, but IIRC if the creditors will have to line up in order of precedence and either agree to assist re-negotiating or restructuring of the debt or drop the hammer. Government tax entities are usually first in line if any taxes are owed, banks and related institutional primary creditors are second and everyone else is a scrum for third place etc. Possibly Arizona laws are different, but in most cases of builders declaring Chapter 11 I am familar with, there is not usually a lot left after the big boys get their pound of flesh from the remains of the corporate carcass.

Having said that getting a Arizona atty ASAP is the best course of action.

Chapter 11

7

???

Am I missing something obvious here? Who does build a house if it’s not the builder?