Selling Distressed Assets

Mike Jones, PresidentShawn Terrel, Vice President

United Country Auction Services

Distressed Real Estate Categories

• Real Estate Categories – Commercial– Residential– Development Property– Recreational & Specialty– Farm & Ranch Land

Foreclosures/Credit Bid Sales/Bankruptcy

• Definitions (Foreclosure)– 1. a legal proceeding that bars or extinguishes a mortgagor's equity of

redemption in mortgaged real property.– 2. the extinguishment (as under the provisions of Article 9 of the

Uniform Commercial Code) of the rights of a debtor in personal property subject to a security interest by judicial proceedings and esp. by judicial sale

• Definitions: (Credit Bid)– The amount a lender can bid at a foreclosure sale under one of its

mortgages, representing the total of all amounts due under the promissory note. Generally sets the total amount the lender is willing to accept for said asset.

Foreclosures/Credit Bid Sales/Bankruptcy• Definitions (Bankruptcy)

– The administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors bankruptcy

Example: Bankruptcy protects the debtor from debt collection by creditors. A debtor may file for bankruptcy, which is called “voluntary bankruptcy,” or a creditor may petition the court to declare the debtor bankrupt, which is called “involuntary bankruptcy.” Involuntary bankruptcy is allowed only under chapter 7 or chapter 11 of the U.S. Bankruptcy Code. There are four types of relief available to individuals or corporations under the Bankruptcy Code: liquidation (chapter 7), reorganization (chapter 11), debt adjustment for a family farmer (chapter 12), and debt adjustment for an individual with a regular income (chapter 13). Municipalities may file for bankruptcy under (chapter 9). Generally, not all debts are repaid in a bankruptcy. The court determines which debts are to be repaid according to their priority, and the debtor is typically granted a discharge from unpaid debts that are dischargeable under the Bankruptcy Code.

Title Theory vs. Lien Theory

The foreclosure process depends on what the state laws subscribe to:Lien Theory: A loan is simply a lien against your property.Title Theory: A loan is a conveyance of title to the lender until the borrower pays back the loan in full.Intermediate Theory: Nine states and the District of Columbia believe the mortgage is treated as a lien unless the borrower defaults, at that time title is conveyed to the lender to pursue foreclosure.

Judicial / Non-Judicial Foreclosure Laws

Judicial / Non-Judicial Foreclosure Laws

• Judicial Foreclosure– The lengthiest process– Requires a court proceeding to conclude– Allows borrower “Right of Redemption” for up to 1 year after

foreclosures completed

• Non-Judicial Foreclosure– Practiced in Lien Theory states– Expedites the foreclosure process– Doesn’t allow lender to pursue “Deficiency Judgment” against

borrower (in most states)– Normally does not allow borrower a “Right of Redemption” after sale

Foreclosure Process(simple version)

Auction normally conducted at courthouse by Sheriff

Foreclosure Process (California)

Bankruptcy Process (Chapter 7)

Opportunity Injection Points

Bankruptcy Trustees in Charge

Court Ordered Sales(case study: Tanglewood Golf Club)• Tanglewood Golf Club (Receivership Case)

– Auction company had relationship with Receiver– Appeared in court outside of Cleveland Ohio– Presented disposition plan (including an auction proposal)– Bank funded marketing campaign– Over 250 attendees at event ($1,045,000 sales price)– Reported sale to court (complete with post marketing analysis)– Project turned around in a 90 day window– See at www.tanglewoodauction.com

Court Ordered Sales(case study: Palisade Park)

• Palisade Park, Ocean front development in Galveston, TX (Bankruptcy Case)– Auction company had relationship with commercial brokerage – Developed an auction disposition strategy (jointly with Colliers

International)– Seller funded marketing campaign (in excess of $160,000)– Produced over 100 potential buyers during marketing campaign– Had opening bid $2 million, bank immediately credit bid at $3.2

million– Project turned around in a 90 day window– See at www.auctiongalveston.com

Creating Relationships

• Developing relationships with the decision makers– Join the following organizations (resource others to find contacts)

• American Bankruptcy Institute• Local “district bankruptcy court” websites• Five Star Conference• Turnaround Management Association• Wall Street Journal• Investor’s Business Daily• Local Business Journal• Internet • Go to the Court Room

Personal Property

• Personal Property– Estates & Living Estates– Industrial & Commercial –

• Manufacturing plants• Small business liquidations• Restaurants • Technology Assets

– Farm & Ranch Equipment– Government Surplus– Corporate Assets– Banks & Commercial Lenders– Leasing Companies

Insurance Issues, Workers Comp and Homeland Security

• Insurance requirements• Bonding requirements • Licensing requirements • Homeland Security issues

Auction Facilities & Auction Houses – Plus or Minus

• Auction House and facility ownership (strengths and weakness)

Online vs. Live

• Live Auction Event• Static Online Auctions (absentee bidding & pre-bidding)• Static Online Only Auctions• Live Internet Simulcast

Selling Distressed Assets