Bankruptcy auction vs. Real Estate foreclosure

Bankruptcy auction vs. Real Estate foreclosure

When a commercial mortgage is in default and the borrower is in bankruptcy, pursuing a foreclosure is not the only option for recovery.

Often, auctions are a preferred method of sale as opposed to foreclosure for both the borrower and the lender.

Here’s why:

1. Speed – If both parties agree, a successful real estate auction can often happen much quicker then it takes for the bank to file for relief from the automatic stay which allows them to foreclose, obtain the foreclosure judgement an bring the property to sheriff sale.   The foreclosure process on a borrower in bankruptcy can easily take 6 – 9 months until complete, while the auction process can often happen in under 90 days.

2. Cost – Obtaining the right to foreclose, the foreclosure action and sheriff sale takes a lot of time and time costs money in both attorneys fees, sheriffs fees, insurance costs, taxes, etc.  Since most auctions are paid for by buyers premiums, auctions can save both the lender and borrower a lot of money.

3. Control – The way an auction is conducted needs to be approved by the court, but many of the factors are negotiable and can be structured to suit the needs of all parties.  Things like the amount of down payment, whether properties can be bundled together and minimum bids are all things that can be negotiated.

Our sister company, REMA, is experienced at performing bankruptcy auctions and that may be the solution to your next problem.

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