Weneta M.A. Kosmala
Chapter 7 Trustee
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Weneta M.A. Kosmala Chapter 7 Trustee |
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ABOUT BANKRUPTCY SALES
In many ways, bankruptcy sales are not much different from non-bankruptcy sales. In many ways, they are completely different animals. Knowing a bit about the process may help you feel more comfortable about bidding on estate property.
PENDING SALES. Notices of Trustee sales are posted on the Bankruptcy Court's website. You can access those notices by clicking here.
OBTAINING NOTICE OF FUTURE SALES. If you are interested in being provided with notice by e-mail of proposed sales, fill out our online questionnaire by clicking here.
THE TRUSTEE HAS A DUTY TO MAXIMIZE THE VALUE OF PROPERTY FOR THE ESTATE. The "estate" is a fictitious entity consisting of all of the Debtor's property, and all of the Debtor's debts. (There are, of course, exceptions.) In a way, it's like a corporation which is going out of business, with the Trustee as the CFO (without all of those huge "incentive packages" that today's corporate officers seem to get!). The Trustee has a duty to get the best value possible for the Debtor's property, in order to make the best distribution possible to the Debtor's creditors. The Trustee has to exercise good business judgment in deciding when, how, and for how much to sell estate property. That judgment will depend upon the type of asset involved -- and we sell everything from operating businesses to houses to cars to stock to artwork!
BANKRUPTCY SALES ARE SUBJECT TO BANKRUPTCY COURT APPROVAL. The Trustee is a "fiduciary", with duties to the bankruptcy estate. The Bankruptcy Court, and other parties in interest, are entitled to "look over the shoulder" of the Trustee, to make sure that the Trustee is acting in the estate's best interests. Thus, before a trustee can sell estate property, parties in interest must be given notice of the impending sale, and an opportunity to comment on it, and the Bankruptcy Court has the final say in whether the sale may be consummated. While this may seem like an inconvenience to the buyer of estate property, it actually provides the buyer with protection, because the trustee will generally ask that the buyer be determined to be a "good faith purchaser", protected to some extent from later argument that there was something wrong with the sale.
NOTICE OF THE SALE MUST BE PROVIDED TO ALL PARTIES IN INTEREST. "Parties in interest" generally are those who are on the Court's "mailing list" for the case: creditors scheduled by the Debtor, those who have requested notice, the Debtor him/herself, the Trustee, etc. Notice of a sale must go to all of these people, who are allowed to respond by commenting, opposing, or even bidding (if overbids are being accepted). Notices of sales in the Central District of California must generally be served at least 24 days before the hearing. Hearing dates are established by the judges, and usually a hearing can be scheduled within 24 to 30 days of requesting a date. The delay can usually be timed to overlap with other processes, such as escrow, to minimize the inconvenience to the parties.
MANY BANKRUPTCY SALES ARE SUBJECT TO OVERBID. As a fulfillment of the duty to maximize the value of estate property, a trustee may provide that any offer is subject to "overbid". This means that, although the trustee may provide notice of the offer and seek Court approval of it, the trustee will continue to consider higher offers. There are no statutory overbid guidelines; the trustee is entitled to set the terms on a case-by-case basis. Overbid terms are subject to Court approval. Both the initial offerer, and any prospective overbidder, should read the proposed overbid terms very carefully, and be prepared to comply with them. Often, the trustee will seek to confirm a "backup bid", that is, the second-best offer, in case the sale to the highest bidder cannot be completed. This prevents the further delay of going back to the Court for approval of the backup bid.
BANKRUPTCY SALES ARE USUALLY NO-WARRANTY SALES. The Trustee "inherits" property from the Debtor with little or no knowledge concerning the property, the condition it is in, the treatment of the property, etc. Further, once a case is fully administered (all property is sold and all funds distributed), the case is closed. This means that the Trustee cannot assume responsibility for the present condition of the property, nor of anything that may happen to it in the future. Thus, bankruptcy sales are usually "as is, where is", with no warranties or guarantees. There are certain offsetting protections. For instance, we allow access to the property by prospective buyers to the fullest extent possible, for inspection and appraisal. Most real property sales go through a full escrow, and are title-insured. If warranty issues are significant, the price is usually adjusted to recognize the risk. But prospective buyers must consider the issue carefully before bidding. |
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Last Updated May 15, 2004.
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