Warning on Preparing Clients’ Bankruptcy Papers

REALTORS® should not assist their clients in preparing bankruptcy petitions to stop foreclosure proceedings, unless they comply with legal requirements. C.A.R. is issuing this warning at the request of the Honorable Vincent P. Zurzolo and the Honorable Maureen A. Tighe of the U.S. Bankruptcy Court (Central District) in California. According to the judges, real estate licensees make up a significant number of the people who are sanctioned by the Central District bankruptcy courts for violating the laws pertaining to bankruptcy petition preparers.

Real estate agents may fail to realize that they are “bankruptcy petition preparers” if they, while acting for compensation, prepare their clients’ bankruptcy petitions and other documents for filing in a bankruptcy court. Bankruptcy petition preparers (other than attorneys) must comply with extensive legal requirements, including, but are not limited to, providing clients with a legal notice upfront, signing the bankruptcy petition, disclosing the preparer’s own address and Social Security Number on the bankruptcy petition, submitting an affidavit with the bankruptcy petition, and refraining from giving any legal advice (see 11 U.S.C. § 110). A violation of the bankruptcy petition preparer rules exposes the real estate agent, as well as that agent’s broker, to potential liability, including civil damages as well as criminal penalties and imprisonment.

As a salesperson, you should check with your broker or manager before preparing any bankruptcy papers for your clients. If you’re a broker, you are strongly encouraged to establish a company policy on what you will or will not allow your salespersons to do with respect to clients’ bankruptcy matters, and to instruct your agents that clients considering bankruptcy should be advised to consult with a bankruptcy attorney.

For more information about bankruptcy, you may refer to C.A.R.’s legal article on Bankruptcy and Real Estate Transactions.

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