Burt M. Polson | Napa Valley and Vallejo's Commercial Real Estate Broker

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Napa Valley & Vallejo, California

Inside a bankruptcy - part 1

I recently sold a well-known commercial property in Napa as part of a bankruptcy. After over a year and a half of working with the property owner, two lenders, the bankruptcy attorney, trustee, the trustee’s attorney and the two brokers who represented the buyer we were able to get some relief to the owners.

It was a long and arduous journey, but in the end the owners were released from substantial debt, pain and an emotional roller-coaster. 

The owners were referred to me from a residential broker over a year and a half ago - they were upside down in the property and needed to sell. The property was valued at approximately one million dollars and was well worth the value. But, the owners had outstanding debt of a first loan of approximately $700,000 and a second loan through the Small Business Administration of over $500,000. To add to the stress, one of the lenders was starting the foreclosure process. Total outstanding debt was $1.3 million not including costs of a sale, past due property taxes and other liens all totaling over $225,000.

The value of the real estate was strong, but with loan debt, liens and expenses the total needed from a sale exceeded $1.5 million, which was over market value. The owners are great people and I felt awful for their predicament. I accepted the assignment and negotiated a short sale arrangement with the two lenders as this was a viable option at the time if the lenders were willing to accept a significant reduction in their payoff. Unfortunately, the lenders’ bottom line plus all other costs and liens still exceeded the value of the property. 

We gave it our best efforts for six months with no success partly because the listing price was just too high in order to pay everyone involved. After consulting with the owners my recommendation was to seek the advice of a bankruptcy attorney. The recommendation from their attorney was to file bankruptcy.

This gave the owners the ability to negotiate payoffs with the lenders and other creditors. It took approximately one year to get to the point where the assets could be disposed. 

After securing authorization allowing me to represent the bankruptcy trustee in a sale I received a court order to sell. I should add that part of the condition of my acceptance of the assignment was to reduce my commission. This condition came by way of the Small Business Administration who would not accept a reduced payoff without everyone involved to also reduce their proceeds. I guess if they are taking a hit they want everyone to feel the pain.

I received authorization from the bankruptcy trustee to offer the property for sale at a marketable price. After contacting clients from my database of past inquiries and placing the property on the open market we narrowed the pool down to one potential buyer. 

In my next article I will explain what happens next as well as tell you about one mystery yet to be solved.

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