Chapter 7 real estate auction problems

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  #1  
Old 10-16-07, 12:09 PM
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Chapter 7 real estate auction problems

Please move this to the appropriate forum if this is not correct.

I was the winning bidder at a Chapter 7 bankruptcy auction for a parcel of land. The price was good (otherwise I would not have bid) and I was told at the time the auction closed, I would more than likely have a contract within a day or two.

That was nearly 4 weeks ago. I still have no ratified contract. The auction company (licensed real estate broker) tells me because I got a great deal, the attorney for the Trustee has to negotiate with all the creditors (as opposed to the asset distribution hierarchy prescribed by law) which takes time. The Trustee tells me it has taken nearly 4 weeks to calculate the capital gains tax on the property and makes no mention of negotiating with the creditors.

Today, the auction company told me they would be happy to work things out with me if I wanted to back out (the contract I signed says they get to keep the earnest money (15K) if I back out). I do not want to back out, I want a contract (or to have the bid formally denied so I at least get the deposit back).

They have already cashed the earnest money check, so it is in escrow and a pain to return. This concerns me, but evidently is not illegal with an ungratified contract. My concern is one of the parties involved may have an acquaintance or another party interested in the property (post auction). Because there were over 20 bidders, it would be difficult to say there was insufficient interest in the auction (giving them grounds to deny the bid). If I drop out, they will probably try to get a chunk of my cash and will make a friend happy.

Any recommendations as to how I should handle this? What kind of attorney would be helpful in this matter? Anyone know anything about laws regarding asset auctions in Chapter 7? Am I too paranoid? Does 4 weeks seem excessive?

Thank you for your input.
 
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  #2  
Old 10-21-07, 10:28 PM
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Wink land deal

I would say the auctioner is correct that the Trustee would have to make sure the court will ratify the sale. In theory a creditor could challenge the deal your got. It's as though the Trustee "left money on the table"; additional monies that could have gone to the bankrupt's estate and be used to pay more money to creditors or expenses of the estate.


It sounds like there may have been a "reserve" meaning that your bid had to be a minimum bid before it can be accepted. Typically this would been determined before the auction. In bankruptcy they must have the right to conduct the auction and deal with the fairness question later.

I would contact the Trustee and find out what is going on. Forget about the auctioner, the Trustee has control. I would ask the Trustee to set this for a hearing to be approved by the bankruptcy court. All creditors would be notified of the hearing and can challenge the sale at that time. It would then be up to the court to decide. If there are no objections and no other higher bids, the court will usually approve it.

It would help your cause if you can get the Trustee on your side of this issue. Generally the court will approve what evert the Trustee recommends. If there is an objection, you would be wise to have the property appraised. Even then you run the risk of showing your price is to low. Nevertheless, the Trustee could still get it approved, even over objections of creditors, if you were the only bidder.

Good Luck!
 
  #3  
Old 10-22-07, 03:25 AM
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Thanks for the reply, there is an additional thread in the Real Estate Law forum regarding things that have happened in the past 4 weeks. In a nutshell, I did contact the Trustee (on 2 occasion) and was told a delay was an accountant calculating capital gains taxes, which is far different from the ongoing negotiations reason provided by the selling attorney.

I have discovered that they were to do all the negotiations with creditors prior to the auction and should have had a minimum contract price at that time.

I won't be too long winded here, I did so in the real estate law forum, but this situation has 100 cases of litigation against both the real estate auction company (violating basic laws of real estate and handling of earnest money/downpayment and escrow) and the selling attorney.

Thanks,
 
  #4  
Old 12-19-07, 10:10 PM
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any updates on this? I'm curious how this will all pan out.
 
  #5  
Old 12-27-07, 09:07 PM
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Chap 7 bid

I would reiterate my advice to talk with the Trustee (who by the way is often an attorney, but doesn't have to be) to get some answers. Trustees often hire an attorney themselves to represent them in the bankruptcy. This is done for a couple reasons. One is to protect them from a creditor later claiming the Trustee mishandled something, like might be the case here. Another reason is keep people who find themselves in a position not unlike yours, from bothering them. In other words, the attorney for the Trustee acts as filter to keep the riff raff at bay (no offense intended).

If you find you are going no place fast either with direct contact with the trustee or his attorney, you can alsways petition the court for a hearing on the matter and let the judge decide.

But be advised the deck is usually very much stacked in the favor of the debtor and often times the trustee. These are very cozy relationships which are part of the good ol boys system. You would be well advised to hire an attorney who practices bankruptcy law in this district. They should have all the contacts with the right people and can be a great deal of help. Given you have a fair amount of $ on the line, it would probably pay off by hiring such an individual. If you try to this yourself (in pro per) you may very well get screwed in the process.

Good Luck!
 
  #6  
Old 01-09-08, 07:09 AM
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I will get a more detailed update soon. I posted a question on the real estate law board with another question. In a nutshell, things are still progressing. I have had to dig my heels in big time and rattle a few cages, but it looks like there may be light at the end of the tunnel.

The attorney hired by the Trustee is doing as little as possible (as slow as possible) and only once I get irate do they move. I did contact the Trustee on one occassion and it did get some action, and I may have to do so again. I have acually considered contacting the creditor and informing them the only reason they have not received their cash yet is because of all the feet dragging.

If you ask me, it is just a matter of the law firm handling the case racking up time so they can get paid more by the taxpayers. I will leave all other editorial comments out.
 
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