Real Estate Commissions

Whether you can keep a real estate commission when you file for bankruptcy depends on how certain you are to receive the commission and how much work, if any, you would need to do in order to earn the commission and receive payment.   In a general sense, real estate commissions are treated like an accounts receivable, which is an asset in your bankruptcy case.  If you are a seller’s agent and just signed a listing and have not even begun to market the property, or you are a buyer’s agent and have not yet signed a purchase contract, the likelihood that you will earn a commission is very speculative and may never be realized.  It is too uncertain to be treated as an accounts receivable or as an asset.  If, on the other hand, you are about to close escrow and receive your commission, then it is almost certain that you will receive your commission and your right to receive a commission is an accounts receivable and an asset in your bankruptcy.

 

But what about the broad spectrum in between, from the beginning of representation of a client to the closing of escrow, what happens then?  In San Diego bankruptcy cases, the trustees will generally view the opening of escrow as the most important factor in determining whether your commission is treated as an asset in your bankruptcy case.  By the time you open escrow, it usually means that you have done most of the work related to earning the commission.  Assuming that the buyer is able to obtain any needed loan and fund escrow, then escrow will close with very little work on your part and you will receive your commission.  In fact, if you did nothing and assigned your right to the real estate commission to the bankruptcy trustee, escrow would still be able to close and your commission would be disbursed from escrow. 

 

If escrow has not yet been opened up, the deal is still speculative.  That usually means that the contract has not been finalized.  An agreement could be formed or it could not be formed.   There is more work to be done.  If you do not continue to negotiate and work toward closing a deal, the sale may never materialize, and you may not earn a commission.  So the potential commission that you could earn from the representation is not likely to be viewed as an account receivable or asset of your estate, at least as far as the San Diego bankruptcy trustees and judges are concerned.

 

It is important to note that if you just formed a real estate contract to sell a particular property and are about to open escrow but haven’t, then your real estate commission may still be treated as an accounts receivable.  Similar to the point of opening escrow, you have done most of the work involved in closing the deal and earning your commission.  You are basically at the point of escrow and will open escrow with a set of simple instructions.  Therefore, it would be prudent to treat a formed real estate contract similar to the opening of escrow.  In such a case, you should assume that you real estate commission will be treated as an account receivable and an asset in your bankruptcy filing.

This entry was posted in Bankruptcy.


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