Inside a bankruptcy - part 2
Bankruptcies are never easy and can be one of the most stressful events in a person’s life. It is a complicated process that is open for the public to view. The entire process must be followed explicitly.
In part 1, I discussed the tough decision my clients made in filing for bankruptcy. They were “upside-down” in their property and owed money to several creditors. Bankruptcy was their only remaining option providing them a reprieve.
I was able too narrow down the pool of offers to one. After presenting it to the trustee, he provided me a counter offer with the terms required to this specific case. It is basically a take-it-or-leave-it option for the buyer - there really is no negotiating.
The buyer was represented by two professional commercial brokers. I submitted the counter offer to the brokers and it was accepted by the buyer. As part of the process the property must be placed back on the market for overbidding for a period of 30 days at a higher price. This gives other prospective buyers or creditors the chance to outbid the current buyer. This is the opposite of a traditional transaction where the offered price and terms are kept private. The price and terms of the buyer’s offer is public knowledge.
Although I received several inquiries, no overbids were presented. If that were to happen the offer process would then go to an auction format with the two or more buyers incrementally bidding via a conference call.
It is difficult to purchase a property in bankruptcy using conventional financing. There is a point in time you must remove contingencies and commit to the purchase. It is difficult for a buyer to do this without a close relationship with a lender who understands the nuances of a bankruptcy sale. In this case the buyer was paying cash so we did not have the added issues with financing.
Keep in mind that during the year and a half the property was not being used it was kept secure and no maintenance was performed. As the listing broker I had access to allow for potential buyers to tour the property. But, any maintenance, broken windows or vandalism that occurred was my responsibility to correct with hopes of later receiving reimbursement.
We still have an unsolved mystery - two days prior to our scheduled close of escrow every entrance had a heavy-duty cable lock installed. Additionally, someone had started cleaning up the landscape as there was gardening equipment left behind and several bags of yard waste.
I made several calls to lenders, attorneys, the trustee, the buyer’s brokers and the original owners with still no clear indication of who installed the locks or started cleaning up the property.
Shortly after the 30 day over-bid period the buyer brought in the remaining portion of his funds and escrow closed at just over $1 million. The buyer is happy with his new property (after cutting off the locks), the creditors are satisfied and the previous owners moved on.