BiggerPockets

I have an apartment complex (150 units) in Texas that was offered at great discount from a Seller that was in default. The complex was up for foreclosure today (1st Tuesday -March).

I got offered the property about a week ago. The Seller's Broker was working with the Seller's bank and the Bank had agreed to accept short sale offers on the property.

We presented the offer over the weekend, but the Seller stopped taking calls from his Broker and my offer was never presented to the Bank.

Basically, the Seller no-showed for the last 72 hours so the property went to foreclosure at 10am this morning....or so we thought.

It seems that early this morning the Seller filed bankruptcy on the complex and has tied up the property in the courts.

I still want to buy the complex and think the Bank will take my number, the Seller has tied it up with a bankruptcy. Per one of my old RE mentors, the deal is not gone but it is out of action for up to 8 mths.

Any advice on this situation?

If I get the Seller to still sell the property and walk from his property, what is motivation (besides giving him big $$$ to walk)?

What is the Bank's position? Trustee's position?

NEED ADVICE!

First of all. Bankruptcy stops any foreclosure. A question to ask is; What type of Bankruptcy was it? 7, 11, 13 etc. If it was a 11 or 13. Chances are the seller may be able to keep the property. If 7 (total liquation) then the courts have control over the asset-not the bank. Even if the Lender pre-approved the sale-it now will become null & void until bankruptcy court rules. That goes for the sellers attorney as well.

Thanks Bill.

(Just a reminder. This is a commercial property. 150 unit apartment complex.)

I was thinking of contacting the owner and ask him what his plans are.

But I was unsure of what he could do.

If he has 'no money'...can he save the property, w/o adding a 'investment partner' with cash?

If he has 'money', how much does he need? Do he have to pay back the bank in full and get a new loan? Is the bank willing to sell to him at discount? Why?

I've worked in RE for over 10 years and negotiated a number of complicated transactions, so the RE side is not the problem...it the LEGAL side.

Where is HIS power? vs. He does not stand and chance ...therefore is just prolonging the eventual sale of his property.

Thanks Bill/Matt.

Great stuff. This will be a big help.

Let me digest your thoughts and I'll give the Seller a call. Hopefully I'll have an update later this week.

Kyle

Update of week #2:

Seller is not interested in signing any contract or working with his bank on a short sale, at this time.

Seems he is denial of his financial condition and still thinks he can raise the full $1.2 and repay the loan to avoid foreclosure. (He has been trying to do this for 4 mths with no takers.)

The Listing Broker (per my request) asked to speak to the Seller's bankruptcy attorney. He was denied.

The Listing Broker has spoken to the Lender and the Lender is filing a petition against the bankruptcy filing based on a number of items..but most importantly the filing was a 'Single RE Asset entity' and has no other assets in which to fund the 'loss' for the apt building loan.

Last, I'm going to the US Court office in downtown Dallas to find the Seller's filing papers and get his Attorney of record. I plan to get the Attorney involved with the Listing Broker and the Lender. I hope this gets my contract offer to the right people and pushes the deal off high center.

Any advice is appreciated. Thanks for reading.

Kyle

Chapter 11 buys time. I think the Seller is hoping for a miracle-maybe the market turning. Sadly in these cases, the appointed Receiver takes over management of the property. They run it and they take a nice management fee but they don't really do much in my opinion to increase the NOI, let alone invest more dollars in the property. They are interim managers so they wait until the bankruptcy court makes a decision. The Seller is now trying to come up with a believable, presentable plan to present to the Court showing how he plans on savings his property and repaying his debt. Perhaps he is using your offer as a basis of "present value" hoping that the lender will reduce the principal making running the property profitable for himself and the lender, i.e. why short sell it...just reduce the loan based upon the current value and save us all legal fees and tons of costs. You also have to keep in mind that if foreclosure has been commenced he may have been pocketing the NOI and not paying the lender anything towards the loan up to this point.

Originally posted by Financexaminer

Kyle, your offer should go to the bankruptcy attorney at this point. The owner is under no obligation to sell at this point unless the court orders the sale. If the BK attorney has an offer he should be communicating that to the court and the intentions of his client. The bank will weigh in as well and may say they would accept the offer. At that point the court will consider the deal, sell it or allow it to be kept if the bank is taken out of it. Not likely, IMO, that a guy is going to get financing while in BK and prior to any discharge, must be family money, and that loan will also need to be approved! Good luck, keep us informed...Bill

That is my plan...find the attorney and give him the offer...and wait for the courts to get involved.

I will update when I find the attorney. At this time, the Seller is keeping that bit of info to himself. We have asked but it is not being provided. That is why I'm going to the Filing Office today and see if I can find the original filing papers, with the attorney's name and contact info.

A few additional points to take into account here.

1). A personal bankruptcy is taking 9 months. A business filing involving RE will usually be longer.

2) Even if this filing is specific to one entity it does not mean it will stay this way. You should find out from the BK filings if he has a PG or a cross collaterized loan involving other assets he owns. This could easily mushroom. I was invloved in a business aquisition last year that ballooned from one entity to ten other businesses as well as a personal BK.

3) How many lienholders are there? Are there Mechanics', Prop. taxes, IRS, UCC's? How about service contracts including property managers?

Generally, the more people at the party, the less food there is to go around.
There is a lot of due diligence you can do and it can become very expensive. So, before you spend money, I recommend having a sit down with the seller as others have recommended and figure out what he wants out of this. If his motivation is to keep the asset, then it could be a long painful and expensive process for you. If he wants to dump it, then communicate with the attorney (through yours) to include your offer in the mix.

You will do a lot of waiting.... too!

The long awaited update:

(Sorry, about the delay. Business is crazy.)

Ok. I spoke by phone with the US Bankruptcy office here in Dallas and through a records search found the filing record and the attorney, for the Owner.

Per the courts rep, I was told that there is no trustee and the attorney for the Owner will be handling all papers work for the time being. So I had intended to call the attorney and present my offer, but put that on hold. (see below)

At the same time, I have been working with the Bank (note holder) on purchasing the note, at discount. Again, the original note was $2.2 mil. It had been reduced to $1.2 and was now non-performing.

With the poor condition of the property, I was offering to purchase the note at $700,000 and then I would worry about foreclosing & the current bankruptcy.

I made my offer on the note to the bank and waited about a week on their counter.

OUT OF LEFT FIELD!!! My offer was denied and the bank took another offer from a new buyer at NET $1.0 mil to the bank. Up until I was told about the new offer and new buyer, I had no clue that the bank was working other buyers. Sh*t!

As of this posting, the note is under contract with the NEW buyer and the bank expects to close soon. I've continued to keep in contact with the bank as a back-up buyer, but I'm not expecting it to come back around. This is a solid deal and if the buyer is strong it will be gone.

Hindsight: I thought about buying the property from the Seller, out of bankruptcy, but I would be paying TOO much (min. $1.2 + bank fees) and have decided to move on.

Hindsight #2: Haste makes waste! Don't delay in wrapping up and closing on GOOD deals. There is always someone waiting to buy a good deal.

Good news: Found a MHP in a similar situation. No bankruptcy filings, bank contact is a straight shooter, and I expect to wrap things up soon.

Buying MHP at 40% of Value. and it comes with extra land to expand.

Thanks everyone for the advice. The BP spirit is alive and well.

Kyle

Appreciate the updates. A great example of how persistence can make the difference as well as good systems for following up.