PROFESSIONAL RESUME

Stephen has had an extensive career in the commercial and residential real estate brokerage and auction business. Since his first job in real estate when he was 14 years old working at a new condominium development giving tours to prospective buyers for the site agents, Stephen has had a passion for real estate. Then, during the savings and loan crisis, Stephen started in the real estate auction business, selling over 75 properties in his first year. His experience spans all types of real estate and auction transactions in over 34 states over the past 24 years, ranging from the sale of entire closed college campuses, large parcels of land, full and limited service hotels, multi-family properties, and portfolios of residential properties for lenders and government agencies. In addition to being an expert in all types of real estate, Stephen is an expert in “legal” sales, including receivership, bankruptcy and foreclosure sales. Over the past 12 months, Stephen has sold assets for all five Trustees in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division. He has provided expert testimony in

multiple contested bankruptcy cases and has marketed and managed dozens of 363 sales. He’s a published author on a variety of legal sale topics as noted herein. Stephen has also been employed as the receiver in a previous real estate case involving the sale of real estate in Washington, DC.

Stephen lives in Belmont Country Club, Ashburn, Virginia with his wife, Katie Karbelk and he has a daughter who attends the University of Central Oklahoma.

STEPHEN MICHAEL KARBELK

■ CURRENT STATUS 9/13 to Current Chairman and Founder, Auction Markets, LLC, Ashburn, VA Auction Markets, LLC is an auction company focused on the sale of all types of commercial and residential real estate, equipment, intellectual property and debt. By bringing buyers and sellers together through a worldwide competitive bidding process, Auction Markets has been able to expand its business by offering auction and transaction services for bankruptcy trustees, banks, property owners, receivers and estates. Auction Markets, LLC also owns Note Markets, its service platform for selling receivables, mortgages, judgments, settlement agreements and other financial instruments and Realty Markets, a real estate team affiliated with Century 21 New Millennium’s One Loudoun Office. 3/15 to Current Team Leader, Realty Markets, a Century 21 New Millennium Team Stephen manages the Realty Markets team, selling residential and commercial real estate in Virginia, Maryland and Washington, DC. Century 21 New Millennium is the #1 Century 21 Franchisee in the United States. Stephen and his team are consistently ranked as the top listing agents for the One Loudoun office. 2/04 to Current Managing Member, Cascade Mobile Estates, LLC Stephen is majority owner of a mobile home park in Cascade, Virginia that consists of 49 pad sites and two single-family homes. Stephen has a full time property manager that reports to him. He manages the day to day decisions and accounting functions of the property. ■ WORK HISTORY 9/13 to 3/15 Real Estate Associate, Coldwell Banker Residential Brokerage (CBRB), Leesburg, VA Stephen was affiliated with CBRB before moving to Century 21. While he was affiliated with CBRB, Stephen was consistently one of the top three producing agents in the Leesburg, VA office and one of the top 100 agents in the region for CBRB. In 4Q14, Stephen was in the top 3% of the 42,500 agents within the NRT system nationwide. 6/12 to 9/13 Co-Chairman and Founder, AmeriBid, LLC, Tulsa, OK 11/08 to 6/12 CEO & Founder, National Residential Auctioneers, LLC, Tulsa, OK CEO & Founder, National Commercial Auctioneers, LLC, Tulsa, OK As founding partner, Stephen developed the systems and business model to establish and grow one of the largest real estate auction companies in the country. Responsibilities included business development, project management, client relations, advertising and promotion strategies, brand development, process and procedure implementation, human resource development, and employee and contractor recruiting. The client list included national, regional and community banks, bankruptcy trustees, government agencies and individual sellers. Transactions included 100+ property auctions, multi-million dollar commercial sales and hundreds of sales in over 20 states. AmeriBid had 40+ team members nationwide.

1/08 to 11/08 Vice President, Commercial Real Estate, Williams & Williams, Tulsa, OK Vice President, Farm & Ranch, Williams & Williams, Tulsa, OK Stephen was responsible for establishing the Commercial Real Estate department, recruiting the sales team and establishing systems for the creation of the service platform. Additionally, Stephen managed the Farm & Ranch group, selling large tracts of agricultural and recreational land at auction. 7/98 to 12/07 Regional President, Washington-Baltimore Region, Tranzon Fox, Fairfax, VA Various Positions, Fox & Associates, Fairfax, VA As a founding partner of Tranzon, LLC, a national auction franchise company, Stephen was responsible for managing the Fairfax, VA office, which included the operations and sales staff for that region. Since 2001, Stephen was the top grossing producer in the entire franchise system, grossing over $1 million in commissions annually. Stephen was instrumental in writing the training manual for the franchise roll-out and being part of the senior leadership team. During his career at Tranzon Fox, Stephen managed over one hundred auctions, including the sale of Computer Learning Center for $23 million, the Residence Inn by Marriott in Manhattan Beach, CA for $17 million and many other large single and multi-property auction events. 1997 to 7/98 President and Founder, Property Auctions Incorporated, Fairfax, VA As founding partner of PAI, Stephen established the systems and processes necessary to start a local real estate auction business. This business was established for approximately one year before it merged into Tranzon Fox. Successful auctions included the sale of dozens of residential and commercial properties in the Greater Washington-Baltimore Region. 1996 to 1997 Asset Manager, Prudential Carruthers Realtors, Fairfax, VA Worked in the Relocation Department of a regional brokerage firm managing the sale of bank-owned properties for bank clients. Responsibilities included managing the listing brokers, managing property renovations, negotiating sales contracts and managing closings. The owners of Prudential Carruthers Realtors became partners in PAI and Stephen started that firm. Prudential Carruthers Realtors was PAI’s first client as PAI served the listings for Prudential’s clients that desired to sell their property at auction. 1990 to 1996 Auction Coordinator, Long & Foster Real Estate, Fairfax, VA Having started as a part-time administrative assistant in the Relocation Department, Stephen worked his way up in the largest independently owned real estate brokerage company to become the Auction Coordinator for the sale of bank-owned and corporate owned properties. During his tenure at Long & Foster, Stephen had many responsibilities including managing properties for bank clients, managing repair estimates and renovations, negotiating contracts, managing closings, conducting agent trainings, new business

development and proposal writing for RTC, FDIC and US Marshall Service RFP’s (Stephen won over 50 contract awards). Once the Land & Auction Department was established, Stephen was responsible for implementing a new business development plan within the company for agents to bring auction listings to the department, solicit auction properties from banks and corporate clients, manage the auction process, run the auction day teams, negotiate contracts, and manage closings. Stephen sold several hundred residential and commercial properties at auction while at Long & Foster. Prior to working at Long & Foster, Stephen had opportunities within other segments of the real estate industry, including working two summers at Montebello in Alexandria, VA showing condominium units to prospective buyers for the sales center agents and working at Kass, Skalet, Segan & Mason, PC, providing pre-closing and post-closing services in the real estate settlement department. Both of Stephen’s parents held a real estate license so from an early age he was exposed to the real estate business. ■ EDUCATION - GENERAL 1994 to 1995 – Select MBA Classes, George Mason University, Fairfax, VA

1988 to 1992 – BA, History, George Mason University, Fairfax, VA

1984 to 1988 – Graduate, West Springfield High School, Fairfax, VA

■ POLICY DEBATE EXPERIENCE 1984 – 1988 – JV and Varsity Policy Debate Team, West Springfield High School

1988 – 1992 – JV and Varsity Policy Debate Team, George Mason University, named top

speaker and winner of multiple debate competitions

1991 – 1992 – Debate Coach, West Springfield High School

1992 – 1996 – Debate Coach, Edison High School

Stephen was an accomplished high school debate coach. His teams were accomplished national traveling teams, winning many tournaments and routinely placing in the quarterfinals or better on the national debate circuit, including touraments at Harvard, Emory, Pace Academy, St. Marks, Charlotte Prep, Westminster, Bronx Science, Glenbrook North and many others. Many of his students went on to have very successful debate careers in college, including Ryan Sparacino (Debated for Northwestern University and won the collegiate National Debate Tournament twice and was named one of the best debaters of the decade), Jacob Weiner (became a successful debate coach at George Mason University) and Ryan Galloway (debated for Baylor University and became Director of Debate at Samford University). When Stephen retires, his dream is to be a full-time debate coach.

■ EDUCATION – LICENSES

• Real Estate License, Virginia

• Real Estate License, District of Columbia

• Real Estate License, Maryland

• Real Estate Brokers License, Oklahoma

• Auctioneer License, Anne Arundel County

• Auctioneer License, Baltimore County

• Auctioneer License, Cecil County

• Auctioneers License, Virginia

• Graduate, Certified Auctioneers Institute, Professional Designation, the highest

designation in the auction industry, three-year, exam based program held at Indiana

University

• Graduate, Accredited Auctioneer of Real Estate, Professional Designation

• Graduate, Worldwide College of Auctioneering, Mason City, IA

• Graduate, Auction Technology Specialist, Professional Designation

■ LEGAL SALE AND ADVISORY EXPERIENCE Stephen Karbelk, CAI, AARE, ATS has been involved in many different bankruptcy and foreclosure auction transactions in various courts during his career. One of his areas of expertise is complex bankruptcy and legal real estate and distressed business transactions. Below is a list of many of the cases Stephen Karbelk has been involved in. The Bankruptcy cases can be accessed in PACER. Unless otherwise noted, each case is a Chapter 7 case in the Eastern District of Virginia, Alexandria Division. Waterford Home Builders, LLC (15-11551) Sale of two residential development parcels and an historic office property (2016) Margaret Stehl (15-13446) Sale of residence in Alexandria, VA for $1,200,000 (2016) Sharbanou A. Hajian (15-11671) Sale of residence in Chantilly, VA for $760,000 (2016) REMAC Recycling (Foreclosure) Sale of former metal recycling facility in Winchester, VA (2016) Indian-Victory Motorcycles of Frederick, LLC (16-10736) Sale of motorcycle dealership assets

JWG Holdings (UCC Auction) Online auction of like new dry cleaning equipment (2016) David Friedman, Trustee of the Philip Friedman Marital Trust Sale of 50% Interest in Retail Shopping Center in Washington, DC (2016) Estate of Philip Friedman Sale of 50% interest in operating Circle K Gas Station in Tampa, FL (2016) Hanlin Automotive (15-11564) Sale of leased premises and equipment to Caliber Collision (2016) Estate of Lois C. Neebe Online auction of 58.78 acres in Berkeley Springs, WV (2016) Leisure Time Recreation Center (15-13491) Sale of quarry lease and retail store inventory with related business assets (2015) Carl E. Williams & Lisa C. Williams (15-12726) Sale of luxury accessories and baby grand piano in Clifton, VA (2015) Robert Van Masters, Jr. & Judi Bausum Masters (14-26416) Sale of 570 acres in Nelson County, VA (2015) Joseline Pascale Harris (15-10941) Sale of residential real estate in Gainesville, VA (2015) Foreclosure Auction (2015) Marketing of 38.217 acres of residential land in North East, MD Foreclosure Auction (2015) Marketing of residential real estate in Elkton, MD Alexander Wali Properties, LLC (14-14235) Sale of office condominium in Fairfax, VA RMP Associates, L.C. (12-12586) Sale of minority interest in future coal royalties Cara Holly Noland and Patrick Paul Truex (14-12790) Sale of mineral interests in real estate in West Virginia Mahbobeh Shariati (13-14059) Sale of residential real estate in McLean, VA (2015) Margaret E. Moss Stehl (15-13446) Sale of residential real estate in Alexandria, VA (2015) Sharbanou A. Hajian (15-11671) Sale of residential real estate in Chantilly, VA (2015)

Betty’s Home Appliance Center, Inc. (15-13579) Sale of GMC work van (2015) Jung Soo Pak and Julia S. Pak (15-13714) Sale of residential real estate in Ellicott City, MD (2015) Northern Virginia Areas Health Education Center (15-13699) Valuation of business assets in Alexandria, VA (2015) Coker, Weldon Wayland Jr. (15-12640) Sale of remainder life estate in residential real estate in Harpers Ferry, WV (2015) Sattar, Mohammad A. (15-12562) Negotiated sale of 7-11 store back to 7-Eleven corporate Restore America’s Voice PAC (15-12163) Restore America’s Voice Foundation (15-12164) Sale of assets of PAC and Foundation assets, including 600,000+ postal and email list (2015) Marc Labgold (13-13389) Sale of penthouse condominium unit in Manhattan (2015) Marvcus Patton (13-11157) Sale of 29.65 acres in Strasburg, VA (2015) Izhar Hussain Syed and Mary Lisa Syed (15-11262) Sale of residential property in Dumfries, VA (2015) Sharbanou Hajian (15-11671) Sale of luxury home in Chantilly, VA (2015) Alan Ira Lemberg and Diane Marie Lemberg (15-11736) Chapter 7 Equity analysis and settlement agreement advisory services to Trustee (2015) 4Everly After (15-11566) Sale of bridal shop inventory (2015) Chang & Piskulich (15-10948) Sale of 8 vehicles from a construction company fleet (2015) Sheila Laszlo (15-11089) Real estate equity and settlement agreement advisory services to Trustee (2015) Barbranda Walls (14-12055) Real estate equity and settlement agreement advisory services to Trustee (2015) Henry E. Gilliam, III (12-15907) Business equity and settlement agreement advisory services to Trustee (2015)

Cara Holly Noland and Patrick Paul Truex (14-12790) Sale of gas leases in West Virginia (2015) 5 Public Square, Hagerstown, Maryland Foreclosure Auction – Maryland Engaged by lender to market foreclosure sale of a 34,729 SF, Class B Office Building (2015) 901-903 Light Street, Baltimore, Maryland Foreclosure Auction – Maryland Engaged by lender to market foreclosure sale of a 3,339 SF, Mixed Use Building (2015) McKee (14-11055) Buyer representative of California based LLC to acquire minority interest in an operating restaurant Ahmed Alhumigani (11-18433) Sale of Mortgage secured by commercial real estate (2015) Fred’s Auto Sales (15-11511) Sale of auto loan portfolio (2015) Reimers Systems, Inc. (14-14603) Sale of Intellectual Property and sale of commercial equipment (2015) Kenneth Michael Crum & Lauren Rae Crum (15-10294) Sale of residential property in Fairfax, VA Mary Melissa Harper-Sands (14-23872) Chapter 13 District of Maryland Sale of 22 acre farm in Upper Marlboro, Maryland Arjen Weiss (14-14466) Sale of four investment properties in northern Virginia Majestic Building Products, Inc. (14-13535) Chapter 11 Sale of building products inventory and vehicle fleet of construction company The Beer Joint (15-10122) Sale of turn key brewery and restaurant in Leesburg, VA (2015) Christina Grace (13-12654) Sale of 20 acre parcel in Spotsylvania, VA (2014) Iron Gate Drive, Waldorf, MD Foreclosure Auction – February 2015 Third party sale of two industrial condominiums Old York Road, White Hall, MD Foreclosure Auction – March 2015 Third party sale of an office building

Blue Jay and Pheasant Drive, Elkton, MD Foreclosure Auctions – February 2015 Third party sale of three residential properties Milmar Plastics, Hagerstown, MD Foreclosure Auction – March 2015 Third party sale of commercial industrial building and CNC router Cherry Lane, Laurel, MD Foreclosure Auction – November 2014 Third party sale of office condominium. Blue Ridge Limousine and Tour Service, Inc. (12-17551) Sale of transportation contracts (2014) Howard E. Paine & Jane M. Dalelio (13-13073) Engaged by Trustee to sell a historic home in Delaplane, VA (2014) Sun Lee Kim (14-12584) Sale of residential home in Herndon, VA - $280,000 Pinkberry Mid-Atlantic LLC (14-14770) Sale of 7 franchise locations in VA, MD and DC (2015) Truland Systems Corporation (14-12766) Sale of vehicle fleet and advisory services to Trustee (2014-2015) John McLaren (14-10007) Engaged by Trustee to market a historic residence in Old Town Alexandria Teklu Chapter 7 Eastern District of Virginia, Alexandria Division Note: Buyer representation to acquire a minority interest in Brown’s Nissan in Fairfax (2014) Edmund Cooke & Wilhelmina Reuben-Cooke (14-10805) Sale of prestigious residence in Fairfax Station - $1,295,000 asking price Haycock Road Foreclosure Foreclosure sale of partially completed home in Falls Church, VA for $490,000 Pine Hill, LLC (10-15393) Sale of a 20% interest in an LLC that owns 432 Acres Paul Miller (14-11011) Sale of 503,000 common shares in a private held company Truland Systems, Inc. (14-12767) Sale of approximately 300 vehicles for the Trustee and asset management/administration services for the Trustee

H. Jason Gold, Liquidating Trustee for the Liquidation Trust created under the terms of the First Amended Joint Plan of Liquidation of the Estates of Vijay K. Taneja and Affiliated Debtors Sale of Default Judgments ranging from $26,000 to $457,604,673, sale of multiple Settlement Agreements and 2nd DOT’s secured by real estate Gopinath Narasimhan (14-50216) Chapter 7 Northern District of California, San Jose Division Note: $743,000 sale of residential property in Ashburn, VA Dynasty House of Design (13-13884) Sale of closed retailer’s inventory and vehicles FW Harris (14-10204) Sale of a Heating, A/C and Plumbing Company Vecorder Technologies, Inc. (12-10351) Sale Advisory Services related to the sale of software and related equipment Darcy E. Flynn (13-14065) Sale of a Promissory Note with an UPB of $173,000 Ichiban (06-10316) Buyer representation to acquire minority interest in an LLC and a Note secured by commercial real estate (2014) epcSolutions, Inc. (13-13153) Sale of intellectual property assets, software assets, pending patents, trademarks and commercial equipment. Ronald Easley (13-12943) Sale of residential real estate and personal property assets Marlin Francis Rekow (10-20624) Sale of a $1,650,000 equestrian property Mohamadi, Saleh & Sadiqa (12-13018) Sale of membership interests in multiple LLC’s Lon Morris College (12-60557) Jacksonville, Texas Chapter 11 Eastern District of Texas Note: Auction of a closed, 112-acre college campus.

Stephen Rowe Oil Properties, LLC (09-81218) Bobby Rowe Energy (09-81217) Rowe Oil Properties Power Well SVC (9-81219) Chapter 11 Eastern District of Oklahoma Three Auctions of oil and gas leases covering several thousand acres in central Oklahoma. Yavapai Downs (11-20092) Chapter 7 District of Arizona Sale of a premier racetrack facility in Prescott Valley, AZ Southwest Contract Packaging (10-54515) Chapter 7 Western District of Texas, San Antonio Division Sale of an environmentally contaminated property adjacent to the San Antonio International Airport Rhodes (11-80130) Sale of personal property Deerwood Homes, LLC (10-31729) Chapter 11 Southern District of Texas, Houston Division Sale of 35 residential lot subdivision Fastech (09-82175) Chapter 7 Eastern District of Oklahoma Sale of commercial real estate Irvin (09-80708) Chapter 7 Eastern District of Oklahoma Sale of residential real estate Mary Than (11-80546) Chapter 7 Eastern District of Oklahoma Sale of residential real estate Bleeker (10-81046) Chapter 7 Eastern District of Oklahoma Sale of a mobile home park Sweet (10-81134) Chapter 7 Eastern District of Oklahoma Sale of residential real estate

Burns (09-80769) Chapter 7 Eastern District of Oklahoma Sale of residential real estate Mumey (08-12552) Chapter 7 Northern District of Oklahoma Sale of commercial and residential real estate Dreadfulwater (11-81315) Chapter 7 Eastern District of Oklahoma Sale of an RV Trinity Restoration (09-10145) Chapter 7 Eastern District of Oklahoma Sale of a reproduction Mustang frame Clarita Operating, LLC (11-81602) Chapter 7 Eastern District of Oklahoma Sale of salt water disposal well equipment Liles Chapter 7 Eastern District of Oklahoma Sale of a John Deere Tractor Marinari Chapter 7 Northern District of Oklahoma Sale of Jewelry JG Motel, Inc. (10-90029-BHL-11) Chapter 11 Southern District of Indiana - New Albany Division Recently filed employment application, approving hearing on 1/20/10, sale of a hotel in Indiana. Dean and Cynthia Bateson Chapter 7 District of Maryland (Baltimore) Bankruptcy Petition #: 08-17706 This was for the sale of 715 acres and related equipment in Tyron, Oklahoma IPIX Corporation 06-10856-RGM Sale of intellectual property assets, high bidder was Sony Corporation in a courtroom auction.

Computer Learning Center Bankruptcy Petition #: 01-80096-RGM Sale of leases, accounts receivable and equipment. Proceeds exceeded $24 million. 1819 Club Chapter 11 United States Bankruptcy Court for the District of Columbia (Washington, D.C.) Bankruptcy Petition #: 03-01640 Sale of a rare strip club license and valuable commercial real estate Continuum Care Corporation Chapter 11 Southern District of Florida (West Palm Beach) Bankruptcy Petition #: 04-34652-PGH Sale of a portfolio of operating and closed nursing homes for $12,000,000+. Roland House, Inc. Chapter 11 Eastern District of Virginia (Alexandria) Bankruptcy Petition #: 03-13855-SSM Sale of the assets of a video and audio production company. Eagle Research Laboratories Inc. Bankruptcy Petition #: 01-14007-SSM Sale of pilot training business equipment. Robert S. Beale, Jr., M.D., P.A. Chapter 7 United States Bankruptcy Court for the District of Columbia (Washington, D.C.) Bankruptcy Petition #: 05-00050 Sale of a weight loss medical practice. WCS Enterprises, Inc. Chapter 7 Eastern District of Virginia (Alexandria) Bankruptcy Petition #: 07-10054-SSM Sale of landscaping equipment company Persnickety, Incorporated Bankruptcy Petition #: 04-11246-SSM Sale of business equipment and trucks for interior design retailer. H20 Entertainment Group Corp. Bankruptcy Petition #: 03-11710-RGM Sale of business equipment. American Canadian Investments, Inc. Bankruptcy Petition #: 04-12034-SSM Sale of motel located in Baltimore, MD.

DTS Electrical Construction, Inc. Bankruptcy Petition #: 07-12589-RGM Sale of business equipment. Takeout Taxi Holdings, Inc. Bankruptcy Petition #: 03-14555-RGM Sale of going concern. Five Star Restaurants, Inc. Chapter 11 Southern District of Texas (Houston) Bankruptcy Petition #: 03-42654 Sale of restaurant equipment leases. Advisor to an affiliated Auctioneer on the case. A&K Partnership Chapter 11 United States Bankruptcy Court for the District of Columbia (Washington, D.C.) Bankruptcy Petition #: 03-01728 Sale of business equipment Thoroughbreds Grill & Brewing Company, LLC Chapter 7 Eastern District of Virginia (Alexandria) Bankruptcy Petition #: 06-10645-SSM Note: Sale of turn-key restaurant.

■ OTHER NOTEWORTHY CAREER TRANSACTIONS INCLUDE:

• $28.7 million foreclosure auction of a 81.46 acre residential development tract in

Lanham, MD – Note: This was the single largest third party foreclosure auction in

Maryland in 2012 and we won the “Auction of the Year” award from the Mid-Atlantic

Real Estate Journal

• $23.0 million 363 Bankruptcy Sealed Bid Auction of lease assignments for the

Computer Learning Center, a national company located in 16 states

• $17.0 million foreclosure auction of a Residence Inn by Marriott in Manhattan Beach, CA

• $15.0 million foreclosure auction in Simi Valley, CA

• $12.4 million for a 150,000 sq ft office building in Silver Spring, MD owned by a

prominent developer in Washington, DC

• $12.0 million 363 Bankruptcy Sealed Bid Auction of operating and closed assisted

living care facilities in the Continuum Care Corporation bankruptcy

• $10.0 million sale of a portfolio of SBA backed commercial properties throughout the US

• $8.6 million auction of residential properties for a national relocation company

• $8.5 million sale of retail center in California

• $7.5 million sale of Ambassador University, Big Sandy, Texas

• $7.35 million sale of Overlook Center, Columbia, Maryland

• $6.5 million foreclosure auction of an entire condominium complex in Ocean City,

Maryland

• $6.0 million sale of Hotel Pontchartrain in Detroit, Michigan

• $5.825 million auction of a car wash, detailing and auto lube facility in Ashburn, VA

• $5.65 million sale of Continuum Care of Sykesville in Maryland

• $5.80 million sale of a multi-family complex in Lexington, NC

• $4.4 million sale of an operating, full service Holiday Inn in Grand Island, New York

• $4.205 million sale of Summerlake Apartments in Charlotte, North Carolina

• $4.2 million foreclosure auction for two apartment complexes in Louisville, Kentucky

• $3.85 million 363 Bankruptcy Auction for the infamous “1819 Club” and

“Joanna’s” in Washington, DC

• $3.6 million 363 Bankruptcy Auction of the intellectual property assets of IPIX, a

publically traded company. The buyer of the assets was Sony Corporation

• $3.5 million foreclosure auction of a nightclub in the CBD of Nashville, TN

• $3.465 million sale of Lakeshore and Sunnydale Mobile Home Parks in Florida

• $3.3 million sale of One Price Distribution Center in Duncan, North Carolina

• $3.224 million auction of 101 room limited service hotel in Williamston, NC

• $3.17 million auction of 12 unit apartment building in Washington, DC

• $3.025 million sale of Shelby Marketplace in Shelby, North Carolina

• $2.99 million sale of Lake of the Woods Apartments in Louisville, Kentucky

• $2.75 million sale of closed car dealership in Herndon, Virginia

• $2.53 million sale of Apopka Shopping Center in Apopka, Florida

• $2.4 million sale of West Crosby Industrial Property in Carrollton, Texas

• $2.365 million sale of Street Road hotel development property in Ben Salem, Pennsylvania

• $2.255 million sale of former Helig Meyers distribution facility in Mt. Sterling, Kentucky

• $2,238,500 auction of a 126 room extended stay hotel in Stuart, Florida

• $2.2 million sale of Lon Morris College, Jacksonville, TX, a closed college campus

• $2.2 million sale of closed banking operations center, Bluefield, Virginia

• $2.15 million sale of 1739 P Street, NW, Washington, DC

• $.035 million sale of Ramada Inn in Macon, Georgia

• $2.0 million 363 Bankruptcy Auction of student loan receivables

• $1.96 million sale of 5611 5th St, NW, Washington, DC

• $1.95 million sale of Ramada Inn in Memphis, Tennessee

• $1.85 million sale of Westgate Mobile Home Park in Florida

• $1.8 million sale of Harbours Edge Care Center in Elizabeth City, North Carolina

• $1.8 million sale of Governors House Hotel in Montgomery, Alabama

• $1.76 million sale of 68 acres on Iron Bridge Road in Chesterfield, Virginia

• $1.76 million sale of closed service station in Sheridan, Colorado

• $1.6 million sale of Baymont Inn in Pensacola, Florida

• $1.65 million sale of Crestview Shopping Center in Crestview, Florida

• $1.567 million sale of Ramada Inn in Corsicana, Texas

• $1.573 million sale of Villa Chateau and Meridian Apartments in Victoria, Texas

• $1.562 million sale of Whispering Pines Shopping Center in Manchester, Tennessee

• $1.54 million sale of Tiffanywood and Harmonyrick Apartments in Dumas, Texas

• $1.5 million sale of office building on Park Plus Blvd., Nashville, Tennessee

• $1.5 million sale of Ramada Inn in Rocky Mount, North Carolina

• $1.45 million sale of the Challenger Building in Port Canaveral, Florida

• $1.452 million sale of Mercure Circle industrial property in Sterling, Virginia

• $1.405 million sale of lumber processing facility in Bumpass, Virginia

• $1.4 million sale of Lenoir Market Place in Lenoir, North Carolina

• $1.3 million sale of an independent hotel in Baltimore, Maryland

• $1.225 milllion sale of Holiday Inn (next to Phillip Morris) in Richmond, Virginia

• $1.21 million sale of the Oak Hall Office Building in Memphis, Tennessee

• $1.2 million sale of Pinecrest Gardens at Lillington in Lillington, North Carolina

• $1.2 million sale of Five Star Restaurant Chain in Houston, Texas

• $1.1 million sale of Bakery Resources Group in Baltimore, Maryland

• $1.1 million sale of Fashion Outlets in Boaz, Arizona

• $1.1 million sale of Wallace Care Center in Wallace, North Carolina

• $1.1 million sale of Crystal Glen Apartments in Anderson, Indiana

• $1.051 million sale of Plaza Hotel in Sioux City, Iowa

• $1.045 million sale of Ramada Plaza in Winter Haven, Florida

• $1.025 million sale of Super 8 Motel in Indian Head, Maryland

• $1.0 million sale of Holiday Inn in Sheffield, Alabama

If additional transaction experience and references are required, please let Stephen know

and he will provide them. His extensive experience in the real estate auction business

includes residential portfolios, commercial portfolios, absolute auctions, reserve auctions,

online auctions, bankruptcy auctions, government agency auctions, ballroom auctions, and

high profile auction transactions. He has sold nearly every type of property at auction,

including all types of residential properties, hotels, shopping centers, land, subdivisions,

office buildings, industrial buildings, multi-family properties, gas stations, gravel pits,

entire operating companies, intellectual property, office leases, and yes, even the famous

bankruptcy auction of the 1819 Club, a strip club in Washington, DC.

■ PROFESSIONAL MEMBERSHIPS, OFFICES HELD, COMMUNITY INVOLVEMENT, AND AWARDS

• Member, National Auctioneers Association • Member, Turnaround Management Association • Member, National Association of Realtors • Member, Northern Virginia Association of Realtors • Member, Virginia Auctioneers Association • Member, American Bankruptcy Institute • Member, National Association of Bankruptcy Trustees • Member, Belmont Country Club, Ashburn, Virginia • Former Board Member, TMA Chesapeake Chapter • Former Vice President, Education, TMA Chesapeake Chapter • January 2016, “Big Deal Hunting”, PodCast on Fast Talking Podcast

hosted by Andy Imholte • January 2016, “TRID: How Real Estate Closings Will Never Be The

Same”, submitted for publication in December 2015 edition of NABTalk

• Graduate, Auction Technology Specialist (ATS), National Auctioneers Association, Charlottesville, VA, January 2015

• Speaker, “Commercial Real Estate Auctions”, Virginia Auctioneers Association Annual Convention, Williamsburg, VA, January 2014

• Speaker, “Commercial Real Estate Auctions”, Pennsylvania Auctioneers Association Annual Convention, Harrisburg, PA, January 2014

• Author, “Effectively Leveraging the Auction Process”, NABTalk, published by the National Association of Bankruptcy Trustees, Winter 2013-2014 Edition

• Speaker, “How to Leverage Auctions to Earn More Commissions”, Real Estate in the Round hosted by Coldwell Banker Residential Brokerage, Tysons Corner, VA

• Attendee, “Advanced Education Session: Ethical Dilemmas in Insolvency Situations, Turnarounds and Restructurings”, Hosted by Judge March Grace Diehl, Turnaround Management Association Annual Conference, October 2013

• Awarded, “Exemplary Service Award”, Presented by the National Auctioneers Association, July 17, 2013

• Speaker, “Understanding Bankruptcy Auctions”, Ohio Auctioneers Association, Winter Convention, January 2013

• Speaker, “Winning Elephant Deals”, Ohio Auctioneers Association, Winter Convention, January 2013

• Panelist, “How to Work with Institutional Sellers”, Ohio Auctioneers Association, Winter Convention, January 2013

• Candidate for Director, National Auctioneers Association, July 2012 Election held at Conference & Show, Spokane, WA

• Staff Instructor, Real Estate Auctions, Worldwide College of Auctioneering, Mason City, Iowa (2008 - 2013)

• Committee Member, Accredited Auctioneer of Real Estate (AARE) Designation Management Committee, National Auctioneers Association (2011 to Current)

• Committee Member, Auction Industry Reporting Committee, National Auctioneers Association, a new committee tasked with developing industry reporting standards for real estate auctioneers (2012 to Current)

• Competitor, Oklahoma State Auctioneers Association, Open Division, Auctioneer Competition, Finished in Top 10 (2012)

• Judge, International Auctioneers Competition (IAC), National Auctioneers Association, Orlando, FL (2011)

• Committee Member, Council on Future Practices, National Auctioneers Association (2010 – 2011)

• Leading Co-Author, “Give Me Five, Now Ten…Years into the Future”, the National Auctioneers Association Industry White Paper on the future of the auction industry. (2010 – 2011)

• Committee Member, 2012 Real Estate Summit, National Auctioneers Association • Presenter, 2012 Real Estate Summit, National Auctioneers Association • Presenter, 2012 Minnesota State Auctioneers Association Convention • Instructor, Certified Auctioneers Institute, Bloomington, Indiana (2009) • Presenter, National Auctioneers Association Annual Conference & Show (2007 - 2012) • Committee Member, TMA Southwest Regional Conference (2009 - 2012) • Board of Directors, Turnaround Management Association, Oklahoma Chapter (2009

to Current) • Presenter, Minnesota State Auctioneers Association Convention (2009) • Presenter, Missouri Professional Auctioneers Association Convention (2009) • Founding Member and President, Turnaround Management Association,

Oklahoma Chapter (2008 – 2009) • Author, “De-Mystifying the Auction Process”, Mid-Atlantic Real Estate Journal, April

26 – May 9, 2013 • The Nuts & Bolts of Selling Commercial Real Estate at Auction”, National

Auctioneers Association Conference & Show, Kansas City, MO (2009)

• Moderator, “The Great Debates – Multi-Par vs. Bidders Choice – Which Auction Method is in the Best Interest of the Seller?” National Auctioneers Association Conference & Show, Kansas City, MO (2009)

• Panelist, “Maximizing the Value of Commercial Real Estate, Machinery & Equipment, and Intellectual Property through the Auction Process”, American Bankruptcy Institute, National Conference, Washington, DC (2009)

• Panelist, “Weathering the Storm: Bankers’ Strategies for Managing Distressed Loans”, Florida Bankers Association, Orlando, FL, January 2009Multiple quotes concerning the sale of real estate at auction, “The Idiot’s Guide to Auctions”. Published April 2008

• Author, “Defining the “Successful Auctioneer” in the Transforming Auction Industry”, The Auctioneer, July 2008

• Committee Member, CRRC, Turnaround Management Association (2006 - 2008) • President, Turnaround Management Association, Chesapeake Chapter (2005 - 2007) • Vice President, Programs, Turnaround Management Association, Chesapeake Chapter

(2004) • Vice President, Membership, Turnaround Management Association, Chesapeake Chapter

(2003) • Chair, Editorial Board, The Auctioneer, an international publication servicing the

National Auctioneers Association (2007 – 2009) • Attendee, “Buying and Selling Distressed Businesses”, TMA Chicago Chapter, April

2007 • Co-Chair, ABI/NAA Joint Committee (2008 – 2009) • Co-Author, “Making Sense of CMBS in a Loan Workout Environment”,

Institutional Investor, Spring 2006 • Panelist, “Strategies for Understanding and Selling Weird Real Estate in Bankruptcy”,

24th Annual Spring American Bankruptcy Institute Conference, Real Estate Committee, Washington, DC, April 2006

• Co-Author, “Auctions: Resolving the “Distressed Receiver’s” Dilemma”, Receivership News, Winter 2006

• Alumni of the Year, History and Art History Department, George Mason University (2005)

• Co-Presenter and Author, “Bankruptcy Sales – A Legal and Practical Primer”, approved for Continuing Legal Education in Virginia, presented to the Richmond Bankruptcy Bar Association (February 2004), Northern Virginia Bankruptcy Bar Association (April 2004), and Tidewater Bankruptcy Bar Association (May 2004).

Select Articles Authored or Co-Authored by Stephen Karbelk, CAI, AARE, AMM

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Selling Other People’s Real Estate: § 363(h) Options for Trustees

Date Created: Thu, 03/10/2016 - 13:07

Under § 363 of the Bankruptcy Code and subject to bankruptcy court approval, chapter 7 trustees have the power tosell the entire interest in property that the debtor owns with nondebtor co-owners. This unique power to sell thedebtor’s and nondebtor’s interests can only be exercised by a trustee in certain circumstances and when the trustee isable to satisfy all the requirements of § 363(h) of the Bankruptcy Code. When undertaking such a sale, trustees mustbe strategic in their approach in order to bring about a transaction that will result in a meaningful recovery to thebankruptcy estate. A sale of the nondebtor’s interest co-owned with the debtor is commenced by an adversaryproceeding against the co-owner. The requirements necessary to obtain an order selling the property out from underthe nondebtor co-owner under § 363(h) are set forth below.

Ability to Partition the Property

One of the requirements for a sale of property subject to the interests of a nondebtor co-owner is that “partition in kind… is impracticable.” The trustee needs to evaluate whether or not the property can be subdivided in a way that is not“impracticable” and will net the same proceeds for the estate as the sale of the entire property, while weighing all therisks and costs. A simple example of a practical partition would be a 640-acre section of farmland. If the debtorowned one-fourth of the farmland and the trustee needed to partition a 160-acre quarter section, satisfying thiscomponent should be relatively easy to accomplish. But most real estate is not subject to partitioning, such as ahouse, commercial building, or even a piece of real estate with features that make it impossible to create multipleparcels of similar value and utility. And even with this example, one could argue that one discrete 160-acre quartersection is better than another, making what seems to be a simple property split a complicated partition.

Net Recovery Analysis

The trustee will need to make a decision regarding whether the sale of the estate’s undivided interest in the real estatewould realize “significantly” less for the estate than if the entire property was sold in order to establish one of thestatutory predicates for the entry of the § 363(h) sale order. An accurate valuation of the property is critical in allrespects, but especially here given the fractional interest being sold. Based on that valuation, an analysis of theestimated net recovery from the fractional interest sale compared to an entirety sale is necessary in deciding whetherto proceed in seeking entry of the sale order. Some of the trustee’s considerations in that analysis should include:

a. Access to the Property. If the trustee is going to attempt to sell the entire property, then the real estate brokerneeds access to the property so that prospective buyers can evaluate the opportunity. In some cases, the co-ownersmay not be cooperative, making access very difficult. For the trustee’s real estate broker, the effect of limited access

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or, worse yet, contentious access may make it practically impossible to find a buyer willing to be part of the transaction. Inconsultation with their real estate broker, trustees should assess the impact that limited access will have on themarketability of the property and consider seeking the bankruptcy court’s intervention if warranted.

b. Individual vs. Joint Debts. Many of the § 363(h) sales usually revolve around the sale of a residence owned by twospouses, but only one spouse files bankruptcy. If the jointly held residence is sold, the trustee is only permitted to use theproceeds to pay joint debts. The trustee should carefully evaluate all of the debts of the debtor and determine whether thescheduled debts are truly only the debts of the debtor or debts for which the debtor is jointly liable with the co-ownerspouse.

c. Carrying Costs. If the property is being encumbered by secured debt and the co-owners are fighting an entirety sale,the trustee needs to account for the accruing carrying costs of the mortgage, assuming that the mortgage is not beingpaid. Other burdens of ownership such as real estate taxes and maintenance costs, and their impact on the property’sequity while the trustee is seeking the § 363(h) sale order, need to be taken into consideration. With significant pre-salecosts and accruals, the trustee runs the risk that a sale that started out with a significant recovery could end up withsomething else.

d. Break-Up Fee. A sophisticated buyer may require a break-up fee in exchange for waiting out a ruling in the adversaryproceeding and entry of the sale order. Even if the buyer does not ask for one, the trustee should consider offering one sothat the buyer has an incentive to not exit the contract. Otherwise, if the buyer exits the contract while the trustee is tryingto get an offer approved over the objection of the co-owners, the trustee could end up having to re-litigate with the co-owners once another offer comes in. For the real estate broker working for the trustee, it can be a tough sale to convincea buyer to stay under contract for several months while the trustee deals with the co-owners unless an adequate incentiveis provided. Since a § 363(h) adversary proceeding is a potentially long process in which the trustee runs the risk of co-owners challenging the sale, a break-up fee included as part of any offer will serve to keep the buyer in place.

e. Legal Fees. Legal fees associated with preparing and litigating an adversary proceeding against the co-owners will bepaid from the sale proceeds. If the nondebtor co-owners are not in favor of their interests being sold by the trustee andare determined to defeat any § 363(h) sale efforts, the trustee must take the administrative costs into consideration. Withthe right facts, effective advocacy and cooperative nondebtor co-owners, the adversary proceeding is often resolved byentry of a consent order allowing the property to be sold.

After taking into consideration these factors, the trustee’s bright-line rule under § 363(h)(2) is whether or not a sale of the fractional

interest would realize “significantly less” than the entirety sale. While there is no standard for what “significantly less” means, it’s

important that the trustee carefully weigh the option of a lower-priced sale of the debtor’s fractional interest to the effort required to

achieve an entirety sale.

Evaluating Co-Owner Impact

Another standard the trustee must consider under § 363(h) and establish to the satisfaction of the court is whether “the benefit to the estate of asale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners.” In some cases, this can be a clear-cut issue, and at other times, it is not. For instance, if the debtor jointly owns a residence that an estranged spouse is living in along with theirminor children, the debtor could argue that the property is necessary for their family, so a sale would be detrimental. On the other hand, thetrustee could argue that the property has substantial equity that can only be realized through a sale because neither the spouse nor the debtorhas the funds to buy the equity from the trustee. The property in this example cannot be partitioned, and a sale of a 50 percent interest in theproperty would be substantially less than an entirety sale, satisfying this requirement of a § 363(h) sale.

Energy Impact

The final standard is very simple: The property “cannot be used in the production, transmission, or distribution, for sale, of electric energy or ofnatural or synthetic gas for heat, light, or power.” If it is, then the trustee should either sell the minority interest in the real estate to the highestbidder, or abandon the interest.

Once the trustee has made the decision to proceed with an entirety sale, the trustee may want to engage a real estate broker to solicit an offerfirst, and then file the adversary proceeding to compel the sale. Alternatively, the trustee can file the adversary proceeding first, and then engagetheir real estate broker. Commencing the adversary proceeding first may be the best course of action and has some material benefits. If thetrustee needs to gain access to the property for the broker to adequately market the property, or if there is unique information about the realestate that the trustee and the real estate broker could use to enhance the marketability of the property, any issues concerning access to theproperty or the cooperation of the nondebtor co-owners (now defendants in the adversary proceeding) can brought to the court’s attention.

Once an offer has been received that satisfies the net recovery analysis, the trustee can use it as a means to negotiate a buyout from the co-owners. Many times the co-owners simply need some motivation and incentive to come to the negotiating table. That motivation and incentive isheightened when there is a real offer to buy the property and the trustee is prepared to commence the adversary proceeding.

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For attorneys representing trustees, the adversary proceeding and litigation may seem like a routine and more expeditious way to get the co-owner’s attention. It is a good idea (and can be highly productive), however, to have a face-to-face meeting with the other co-owners after anacceptable offer has been received. Many times the co-owners may just be frustrated with the situation and need to vent. Once they realize thecost of fighting a sale, they will generally choose to avoid any litigation and decide to cooperate with a sale. The trustee should also use thismeeting as a time to negotiate terms with the co-owners to help maximize the ultimate sales price. If the trustee can turn the co-owners fromconfrontational to supportive, then the overall result for all parties involved will be much improved.

With a § 363(h) sale, the hurdles to a significant net recovery of the debtor’s interest in real estate may take longer than a § 363(b) sale, but itcan be worth it if there is meaningful equity for the benefit of the bankruptcy estate. But the trustee has to be strategic in the way that they dealwith the co-owners and has to use an experienced real estate broker than can generate an acceptable offer with a patient, motivated buyerwhile also working with adversarial co-owners.

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Stephen Karbelk

TRID:How Real Estate Closings Will Never Be The Same

30 www.nabt.com

walk into the closing. To keep your transactions closing on time, make sure your agent is following up with the buyer-broker and confirming the buyer has received and accepted the CD and that there are no issues. If the buyer is working with a potentially problematic lender, ask your agent to encourage the lender to get a draft CD out 5 to 7 days advance of the closing so the buyer can review, get their questions answered and then the lender can issue the final CD 3-days before closing. With respect to the Seller’s Closing Disclo-sure, there is no rule that the Seller must receive the CD 3-days in advance, only the buyer that is obtaining financing must receive it. My belief is that the lender, in coordination with the closing company, will issue the seller’s CD at the same time as the buyer’s CD. But it’s not a rule and there is no requirement that the seller acknowledge receipt.

The fines for non-compliance to the TRID rules by the lenders and the title companies are extremely high, ranging from a $4,000 statutory penalty if the lender does not dis-closure the borrower’s interest rate and APR, up to $5,000 per day, per violation for a First Tier penalty, up to $25,000 per day, per violation for Second Tier “reckless” violations and up to $1,000,000 per day, per violation for Third Tier “knowing” violations. Given the potential penalties, no le-gitimate lender or title company would dare deviate from any of these rules, including the 3-day waiting period rule, regardless of how many times you may ask.

No More Last Minute Buyer Credits at Closing. This is perhaps the potentially biggest problem for trustees because you will not be able to give a credit at closing to solve a last minute problem. For instance, we have all had the situation when the less than cooperative debtor does not move out of the house until the night before a closing. Your agent goes to the property the next morning only to find the house needs to be cleaned or it’s full of trash, or worse yet, the refrigera-tor, washer and dryer were taken when they were supposed to stay with the property. Before TRID, you could just give the buyer a credit at closing for them to solve the problem post-closing. But after October 3, you can’t do that because it would require a change in the CD. This doesn’t mean that a nominal $100 credit couldn’t get approved to fix a hole in the wall but if you have a situation where the cost was much higher, such as $1,000, or even $4,000 for new appliances that went missing, it could require the lender to completely re-underwrite the transaction. As the trustee, you and your agent need to prevent this from happening in the first place. But if it does happen, you have to solve the problem before

On October 3, 2015, new rules governing the financ-ing of real estate sales went into effect that will di-rectly impact how chapter 7 trustees sell residential real estate. Known as TRID (TILA-RESPA Integrat-ed Disclosure Rule), these rules were developed by

the Consumer Finance Protection Bureau (CFPB) to help protect consumer borrowers when they are financing a home purchase. This article highlights how TRID will change the way trustees manage the sale of residential real estate when administering their cases. The TRID regulations fundamentally change the way the lender and the title company process the real estate closing.

If you dare tackle it, you can read the entire 1888 page TRID “Final Rule and Official Interpretation” on the CFPB website. And if you have a real estate settlement practice, you probably already have. For trustees that are not in the title business, but instead sell residential real estate as part of their trustee practice, these are some of the rule highlights you need to know.

No More HUD-1’s (most of the time). When selling a resi-dential property and the buyer is obtaining financing, the settlement company will no longer be preparing a HUD-1. Instead, the HUD-1 is replaced with a Closing Disclosure (CD). The CD is the new settlement statement that has been designed to clearly outline all of the financing charges and settlement charges to the consumer buyer in a more transpar-ent way (at least in the eyes of the CFPB). What is not clear is if the HUD-1 form will still be used by title companies for transactions that do not fall under the new TRID rules, such as the sale of commercial real estate, all cash transactions and land sales over 25 acres. The new form starts being used for all residential sales where the purchaser applies for a loan on or after October 3, 2015.

3-Day Waiting Period. Period! No exceptions. The lender, not the closing company, must send to the buyer the final Closing Disclosure 3 days before closing and the buyer must acknowledge receipt of the CD. The 3-day period is calcu-lated in days, not hours, so it must be delivered 3-days before closing and not 72 hours before closing. Once the “final” CD has been delivered and accepted by the buyer, it can not be changed, with only a few minor exceptions discussed below. If a title company and lender do not follow the 3-day waiting period rule they are subject to very large fines so don’t expect anybody to waive that rule. This waiting period is intended to give the consumer buyer an opportunity to review the CD and understand all of the loan charges and closing costs before closing on the transaction. Gone are the days of first receiving the HUD-1 the afternoon before a closing or as you

KEY POINTS

1. Given the longer closing timeline, add 30 days to your per diem loan payoff calculations

2. No more last minute changes to the CD - so don’t wait to review it

3. Have home inspections completed at least 3 days before closing

4. New TRID regulations don’t apply to all-cash sales

About the AuthorStephen Karbelk, CAI, AARE, ATS, is a Realtor with Realty Mar-kets, a Century 21 New Millennium Team located in northern Virginia. Along with his team associate, Stephanie Young, Realty Markets provides real estate valuations, auctions and brokerage services for Chapter 7 Trustees in Virginia, Washington, DC and

Maryland. Mr. Karbelk first started in the real estate business in 1990 and has been employed in over 75 bankruptcy cases to sell real estate either as a broker or an auctioneer. He has been employed to sell real estate throughout the United States, ranging from shopping centers in California to a closed college campus in east Texas to multi-million dollar homes in northern Virginia.

American Bankruptcy Trustee Journal • Fall 2015 31

closing and not push it onto the buyer to solve the problem post closing. This may require you to advance the costs to solve the problem, or have your agent advance the cost. For-tunately, you are able to make last minute changes to the Seller side of the CD because it does not affect the buyer’s financing. But you can’t change the buyer’s side of the CD without running the risk of another 3-day waiting period delay.

The only changes on the buyer’s CD that will be permitted at closing are adjustments to the real estate commission, real estate taxes and utilities as well as correcting any typos on the CD. Beyond that, any other changes will require the lender’s underwriting approval and could result in a closing delay.

Do the Home Inspection and Walk-Thru as early as pos-sible. If the sales contract provides for a home inspection, be sure it gets done as quickly as possible so that if there needs to be work done or there needs to be an adjustment in the price, the lender can be notified early in the loan underwriting process. As a normal course of practice, you should require the buyer to satisfy the home inspection before the sale hearing so that if an adjustment needs to be made, beyond informing the court, you can disclose it to any other purchasers that may want to bid on the property, leveling the playfield for all interested parties. You should also en-courage your agents to do the walk-thru 10 days before closing. In a perfect world, the debtor will have moved out by then and the buyer can do their walk-thru so any closing credits or price adjustments, if any, can be negotiated before the lender issues the final CD subject to the 3-day waiting period. Unfortunately, this will be a challenge since most debtors don’t move out until the latest possible day.

Expect sales with financing to take 60 – 75 days. Gone are the days of getting a financed deal closed within 20 days. Because lenders now have many more underwriting require-ments and deadlines to follow, it will be nearly impossible for a buyer to close on a financed sale quickly. One of the new TRID lender requirements is that a buyer must sign the “Intent to Proceed” form that is prepared by the mortgage company. The lender can not move forward with processing the loan until the buyer signs and submits that form. Prac-tically speaking, no buyer will be able to sign the Intent to Proceed until the Bankruptcy Court approves the sale trans-action. We may find that some lenders will move forward subject to Bankruptcy Court approval but if the purchase price escalates as a result of a courtroom auction, then the underwriting process may have to start all over again. Ad-ditionally, if the appraiser finds out the initial sales price and completes their appraisal with that initial price in mind, and then there is an auction in the courtroom that results in a much higher price, the appraisal, which was potentially influenced by the initial price, could be too low, jeopardizing the transaction. You would be better off waiting for the final sales price to be set before the appraisal is ordered.

Another implication of the anticipated longer closing time period is your holding cost calculations when preparing your equity analysis and estimated net recovery for the estate. Chances are you are going to need to add in one more month of interest, real estate taxes, association dues and any other

holding costs of the property. In the higher priced markets, this can easily subtract another $5,000 or more from the estate’s net proceeds.

The new TRID rules also apply to residential refinance transactions so if you have a borrower refinancing their home, such as through a Chapter 13 process, expect it to take the longer period as well.

Finally, you may have to update your standard language in your residential real estate contracts. With the trustee’s I’ve worked with, we use the standard contract closing lan-guage: “Closing shall be on or before x-date or within 15 days after entry of an Order by the US Bankruptcy Court approving this Contract, whichever is later.” Under the new rules, if the purchase is subject to financing, the trustee will need to change 15 days to 45 days. And be prepared for it to take even longer, especially as the lenders and title com-panies adapt to the new rules.

Cash is King…When It’s Cash. We have all done deals where the buyer represents they are “all cash with no financing contingency” but we know they are getting financing from a lender they have frequently borrowed from. Perhaps the buyer is putting 60% down so they only need a loan for the other 40% of the purchase price, a very secure loan any lender would be eager to fund and a sale you are confident will close. However, the new TRID rules do not treat a loan with a low Loan-to-Value (LTV) differently than a loan with a high LTV, such as 95% financing with a first time buyer. That same “all cash” deal will still take 60 or more days to get done. If you are going to do an “all cash” deal based on the premise that the buyer can close quickly, make sure the buyer provides proof of funds for the entire amount of the purchase price and anticipated closing costs. The TRID rules only apply when the buyer is getting financing for the pur-chase of a qualifying residential property, such as a 1-4 unit residential home or residential lot (under 25 acres) they are going to build a house on. If the buyer is paying all cash, the TRID rules do not apply, there is no 3-day waiting period and the buyer can close quickly just like the pre-TRID days. As an aside, it’s not clear if the HUD-1 form will still be used for all cash deals and the CD form will be used for financing deals. We will have to wait and see. The CFPB only issued rules around consumer mortgage transactions and not all cash transactions.

As the trustee selling residential real estate, the new TRID rules can cause closing delays costing you valuable estate proceeds and last minute cash expenditures that previously were managed through buyer credits on the HUD-1. To effectively manage the closing process, be sure your listing agents are closely monitoring the buyer’s loan approval progress so that your closings stay on track. Additionally, encourage the debtors to move out of the home at least 10 days before the anticipated closing, if not earlier, so that any property condition issues that may arise can be resolved well before closing. Finally, expect the lenders and title companies to be very cautious after TRID goes into effect on October 3, 2015 as they will be dealing with myriad new rules and regulations with many more I’s to dot, T’s to cross and penalties to avoid. Q

32 www.nabt.com

JOURNAL OF THE NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES

IN THIS ISSUE:A Tale of Two Cases: Turning Residential Real Estate into an Asset

Effectively Leveraging the Auction Process

Nuts and Bolts of Employing and Supervising Sales Professionals

Selling Property Subject to Tax Liens

Case Study: Sale of Property Jointly Owned by Bankruptcy Estates

Nuts & Bolts of Sale and Assignment of Intangible Assets of a Debtor: Consider-ations Related to Intellectual Property and Franchise Agreements

Noticing § 363 Sales –How Hard Can It Be?

In Memoriam: Remembering David W. Allard

WINTER 2013VOLUME 29ISSUE 4

ISSUESALESThe

“Going once, going twice,

last call… the image of the traditional

auctioneer.”

By Stephen Karbelk, CAI, AARE CEO, Auction Markets

LeveragingtheAuction Process

Effectively

20 www.nabt.com

Perhaps one of the biggest challenges that auctioneers have to overcome with trustees is our image. We are

often perceived as cowboys wearing big hats, dirty boots, driving a big truck rolling in to sell an inventory of dated equip-ment. While there are still some auctioneers that personify that image, my generation is a dif-ferent group. We are the profes-sionals impressed less on how it “used to be done” and focus more on the new techniques available to create competitive bidding environments for the sale of all types of assets. We are the auctioneers that have become experts in writing bidding procedures, implementing creative, targeted marketing cam-paigns and developing customized auction processes that compel buyers to bid.

Breaking the ImageFar too often, a trustee will think of an auction

as a last resort sale method. When it comes to real estate, they will turn to a real estate broker first. Or when there is a company to be sold, they will turn to a business broker for buyers. But rarely are trustees turning to an auctioneer first. The perception is that auctioneers should only be used when all other sales strategies have failed. Then, when the auctioneer is given the task of selling tired assets, and the prices are lower than the trustee had hoped for, the auction process is faulted for “not working.” When, in reality, it was the first process the trustee selected that didn’t work.

How Successful Auctions WorkFor an auction to be successful, the trustee should hire an

auctioneer with the requisite transaction experience for the assets to be sold and the suggested auction methodology. The first step is for the trustee to know the strengths and weaknesses of as many different auctioneers as they can. As the auction industry has matured, so have the skill set of auctioneers.

As recently as ten years ago, it was common for an auctioneer to be a generalist, able to sell all types of assets at auction. But as technology has taken over how auctions are conducted, and how the online auction platforms have created increased com-petition among auctioneers nationwide, auctioneers have been forced to find areas of specialization. As a trustee, you need to understand which auctioneers have the most experience with certain types of assets. Unfortunately, the days of just turning to the auctioneer you have always known to sell everything for you is probably not the best solution to achieve the highest and best price for your assets. There are auctioneers around the country that can service the needs of any trustee through their

About the AuthorStephen Karbelk, CAI, AARE, is CEO and Founder of Auction Mar-kets, LLC, a real estate auction company headquartered in north-ern Virginia. Stephen started his real estate career in 1990 and has been involved in the sale of hundreds of millions of dollars of real estate, intellectual property, business interests throughout the country. Stephen specializes in bankruptcy, receiver, foreclosure,

REO and government auctions for all types of commercial and residential properties.

KEY POINTS

1. Whenever a trustee has any real estate to be sold, they should get a proposal from both a real estate broker and an auc-tioneer. In many cases, the auction method may bring about the best result for the trustee.

2. When evaluating whether or not to auction a particular asset, the trustee should consider the asset’s demand in the mar-ketplace, the auctioneer’s transaction experience and the estimated equity in the asset.

3. A successful auction requires an effective marketing strategy and a buyer –friendly auction process.

4. Auctioneers can offer more than just the traditional live auction process. Many auctioneers can now offer online auctions, simulcast auctions, multi-parcel auctions and sealed bid auctions.

online auction capabilities, marketing skills and available resources.

Once a trustee has identified the auctioneer with the most relevant transaction experi-ence, the trustee should ask the auctioneer to give them an analysis of what they believe the assets should sell for, what their marketing plan would be and the timeframe for bringing about the sale. A trustee should also ask the same of a broker. Instead of a trustee up deciding up front what should be sold through brokerage or sold through auction, a trustee

should ask both an auctioneer and a broker for their opinion on every asset. Then the trustee can make the most informed deci-sion on which sales method will achieve the desired results.

In many cases, an auction may bring the highest price and be the lowest cost sales option. There are many situations in which the auction process will result in the highest price, especially when there are high-demand assets that need to be sold. Re-

cently, I was involved in the sale of a commercial property in Arlington, Virginia that was listed with a commercial real estate broker for $2.5 million. The broker received offers on the prop-erty between $2.2 and $2.3 million. The seller recognized that the property was a valuable property that buyers were competing to acquire and decided to hire me to market and sell the prop-erty at auction. After a four week marketing campaign, the auction had over 60 people in attendance and the property sold for $2.85 million. Better yet, the transaction closed seven (7) days later, all cash, with no contingencies. The auction netted the seller nearly $500,000 in additional proceeds.

When deciding whether or not a trustee should proceed with an auction, there are several criteria that should be considered:

• Asset Demand – Is the asset an asset that will generate sig-

A trustee should also ask the same of a broker. Instead of a trustee up deciding up front what should be sold through brokerage or sold through auction, a Trustee should ask both an auctioneer and a broker for their opinion on every asset. Then the trustee can make the most informed decision on which sales method will achieve the desired results.

LeveragingA trustee should also ask the same of a broker. Instead of a trustee up deciding up front what should be sold through brokerage or sold through auction, a Trustee should ask both an auctioneer and a broker for their opinion on every asset. Then the trustee can make the most informed deci-sion on which sales method will achieve the desired results.

NABTalk® Winter 2013 21

nificant interest? If the asset is a low demand asset then the trustee should go with a brokerage transaction because a brokerage transaction only requires one buyer while an auction requires multiple buyers.

• Transaction Experience – Does the auctioneer you are working with have the required transaction experience to manage the sale?

• Equity – Is there adequate equity in the assets being sold so that as the trustee you are in a position to sell the assets at auction? One of the benefits of the auction process is that every bid is an offer to purchase. As the trustee, you want to make sure you are in a position to sell the assets for the highest price received as a professionally marketed and conducted auction. If there is a certain minimum sales price that must be achieved, and that sales price is close to the auctioneers value, then perhaps the deal is “too close” to conduct an auction. However, as the trustee, if you have pricing flexibility, then an auction sales process could be the ideal process.

What should never be a consideration is the notion that “I don’t do auctions.” It’s much like saying you don’t do email or you don’t buy airline tickets online. You could have said that in 1990, but not now. With the technology and resources available to auctioneers, every trustee should always consider an auction process for any asset that needs to be sold.

Understanding the Two Attributes and Five Auction Methods An auctioneers’ responsibility is to create demand among

multiple buyers for the assets being sold. Demand, in turn, is created through two dis-tinct activities – the auction marketing strategy and the auction process. The first addresses how the auctioneer will find the buyers and the second addresses how the auctioneer will compel buyers to bid.

Auction Marketing Strategy – The days of running ads in the Sunday newspaper and showing up at an auction are long gone. Today’s auctioneer is adapting to the changing buying habits of the technology driven consumer and investor. Most advertising is now driven through e-media strategies, including popular third party websites, targeted email campaigns and social media. Fewer auctioneers are relying on newspaper advertising. Auction marketing budgets designate less funds for newspaper advertis-ing and more funds for electronic marketing. I have found that one newspaper advertisement is just as effective as three news-paper advertisements because the same readers view the auction section every week. If a bidder has an interest, they will respond to the first advertisement so there is no need to keep running the same advertisement over and over. However, with digital marketing, a bidder needs to see more impressions to solicit a response because of the information overload many buyers experience. Fortunately, the cost of each digital impression is much lower than the cost of a print impression. Additionally, an auctioneer can track the effectiveness of every digital market-

Auction Marketing Strategy + Auction Process =Successful Auction

ing campaign through click-thru rates and other digital market-ing management techniques.

When it comes to real estate, the single most effective market-ing tactic is signage. My experience is that over 40% of all calls from buyers for real estate auctions come from signage. Simply putting up a sign, though, is not enough. An experienced auc-tioneer will take the time to develop a signage strategy to make sure that those people that live or work near the property are aware of the auction. Signage strategies include designing a custom sign that has sufficient exposure given the traffic patterns in the area. While real estate buyers are being reached worldwide through digital marketing campaigns, those buyers that are local to property will always be your best prospects.

Auction ProcessOnce the auction marketing strategy has been finalized, the

other key sale characteristic is how the auction will be conducted. Reaching the prospective buyers is only part of the process. Turning the prospective bidders into buyers is the step that results in success. In order for that to happen, the trustee and the auctioneer need to work together to prepare bidding procedures that encourage buyers to bid through an auction process.

When developing the bidding procedures, there are five key auction processes that should be considered:

• Live Only Auction – This is the traditional auction process when the buyers show up at the auction at a designated loca-tion and bid to an auctioneer. This process, while very ef-fective, has its limitations given the available technology to expand the base of prospective buyers. A live auction works best when it’s (i) a sale of real estate that is expected to only garner interest from local buyers or (ii) courtroom auctions when there is a stalking horse bid and all competing buyers are required to show up at the sale hearing and submit their highest and best bids since the bankruptcy court will be final-izing the sale at the conclusion of the hearing.

• Online Only Auction – This auction process requires buyers to bid through an online auction platform. There is no auctioneer calling bids in the traditional sense, but the auctioneer is qualifying bidders before they bid, encourag-ing them to bid while the online auction is open and answer-ing questions about the assets being sold while the bidding is taking place. The auctioneer is also monitoring the bidding activity, declaring when a bid has met any minimum bid requirement and working with all of the buyers post-auction to finalize each transaction and pay the proceeds to the trustee.

• Live-Online Auction – While there are multiple variations of this process, this is when bidders submit bids online prior to the live auction and then when the live auction occurs, the auctioneer starts the auction with the last online bid. Bidders that are live with the auctioneer can then bid along with the online bidders. This process can reach the most number of bidders and is especially effective for personal property assets where there is a very broad market.

• Multi-Parcel Auction – This auction process is highly complex yet very effective in achieving the maximum prices for mul-

Auction Marketing Strategy + Auction Process =Successful Auction

22 www.nabt.com

tiple, like-kind assets. The premise is that if a trustee has a group so similar assets, the trustee could offer the assets individually or in the entirety. This process gives the trustee the ability to offer the assets individually, in combinations and in their entirety, at the same time. The result is that the individual parcel buyer must compete against the combination buyer that must compete against the entirety buyer. Recently, I was involved in selling for a trustee the debtor’s LLC in-terests in five non-bankrupt restau-rants. The five restaurants were in three different states with three different franchisors. After we obtained a stalking horse bidder for each of the LLC interests, we conducted a live auction in a con-ference room at the bankruptcy court. The bidding procedures required each of the buyers to be pre-approved by the trustee and for them to bring a minimum deposit to the auction. Then, during the auction, each of the approved bidders could submit a bid on one, multiple or all of the LLC interests at the same time. The stalking horse bid started at $135,625 and after 21 rounds of bidding, through various combinations, the final sales price was $360,000, or a 265% increase over the stalking horse bid price. The suc-cessful high bidder was not the stalking horse bidder either. Had the LLC interests only been offered through a business broker individually or in their entirety, this level of competi-tion would not have been achieved and the price would have been much lower. This type of auction process can be very effective to sell land or any other portfolio of like-kind assets.

• Sealed Bid Auction – This auction process is best used when an auctioneer believes there is a finite market for the assets being sold but that there needs to be a sense of urgency created to compel the limited market to respond to the of-fering. The strategy behind the sealed bid auction process is that the buyers must feel compelled to bid or they will lose their opportunity to bid. For this to happen, there must be “credibility of sale” that requires buyers to bid through the sealed bid process. The crafting of the bidding procedures are especially important for this type of process since they will drive all aspects of the sales process. For instance, the bidding procedures should require that if multiple bids are received, the trustee reserves the right, but not the obligation, to allow for additional bids, whether through a live auction process or additional rounds of sealed bids. Tactically, it is important that the bidding procedures never require the trustee to automatically take the high bid and open it up for a live auction. The reason is that sometimes a bid will be received that is far superior to any other bid received and it

is in the trustee’s best interest to simply accept that bid. However, if a superior bid is received and then that bidder re-alizes through a live auction process that their bid is far above any other bidders bid, they may attempt to re-trade the transaction. It is always best for the trustee to have flexible bidding proce-dures since nobody knows what bids will be received and the resulting dynamics that can come from those bids.

ConclusionTrustees have the responsibility to

recover the maximum value for all assets for the benefit of the unsecured creditors. The preconceived notion that an auction process should be reserved for special situations is no longer an accurate attitude. Today’s auctioneers have more marketing skills, sales tools and auction processes available to them than ever before. On every potential asset sale, a trustee should seek the opinion of both an auctioneer and a broker, have an open mind when com-

paring strategies and potential outcomes and then choose the sales agent that will bring the most value to the estate. Q

When deciding on which auction method should be used, a Trustee should consider:

• Live Auction

• Online Only Auction

• Live-Online Auction

• Multi-Parcel Auction

• Sealed Bid Auction

Each method has its benefits depending upon the assets being sold. If objectively evaluated, a trustee will find that today’s professional auctioneers have more skills and resources available to create competitive bidding for the trustee’s assets than ever before.

received during the mini-conference, the Advisory Committee’s joint Subcommittees on Consumer Issues and Forms provided additional input on the draft plan and rules.

The plan form contains three features that are highlighted at the beginning of the document. First, it permits the debtor to propose the amount of a bifurcated secured claim, subject to a creditor’s objection to confirmation. Second, the plan permits the debtor to request the avoidance of certain liens impairing exemptions under § 522(f). Third, the plan includes a space in which the debtor may propose nonstandard provisions – that is, provisions not included in, or contrary to, the plan form. None of these features will be effective unless the debtor declares, in the first part of the document, that the debtor’s proposed plan contains that feature.

Effective implementation of the plan form requires the adop-tion of conforming amendments to Rules 2002, 3002, 3007, 3012, 3015, 4003, 5009, 7001 and 9009. The amendments fall into three categories: (1) amendments that affect the filing, process-ing and treatment of claims; (2) amendments concerning service and notice in chapter 13 cases; and (3) amendments that would limit deviation from the plan form.

Rule 3015(c) would be amended to require use of the Official Plan Form and to make clear that provisions deviating from the Official Form are not effective unless they are placed in the part of the Official Form designated for nonstandard provisions (and identified accordingly). As described above, Rule 9009 would also be amended to limit allowable alterations of the Official Plan Form. Q

continued from page 15 AOC

NABTalk® Winter 2013 23

“Maximizing Value of Commercial Real Estate at the Foreclosure Auction”

By Stephen M. Karbelk and Alexander M. Laughlin, Esq.

Managing troubled commercial assets can be a very difficult task. Every Special Assets

Officer has to decide how to recover the most money at the least cost. Most Special Asset Officers are able to restructure a troubled loan or give enough time to a borrower to payoff the loan through a refinance with another lender without having to take legal action. In some cases, the lender will sell the note. But when those options are no longer available, the next step is usually to foreclose on the property. The question becomes – how to maximize the potential return when foreclosing on the property. A majority of lenders assume that they will have to buy back every commercial property they foreclose on since only investors seeking an unrealistically low price show up at the foreclosure auctions conducted on the courthouse steps. This article will address this “buy back” assumption by showing how certain types of commercial real estate should be marketed and sold at the foreclosure auction to a third party buyer. When a foreclosure auction is managed and executed properly and professionally, the lender may maximize the value of the property and minimize their cost of recovery. Specifically, this article will address what types of commercial real estate sells best at the foreclosure auction and how to logistically and legally position a property for a successful foreclosure sale. When to use the Foreclosure Auction to sell The decision calculus is a simple Cost-Benefit Analysis of the most likely net to the lender at the foreclosure auction versus the most likely net selling the property in their Real Estate Owned (REO) inventory via general brokerage. With commercial real estate, the cost savings of selling the property at a foreclosure auction are significant. For instance, the lender will benefit from:

Immediate recovery of the value of the property. Ability to immediately commence recovery against the borrower for any deficiency

in those jurisdictions that permit deficiency actions. No closing costs paid by the lender since the buyer pays them at closing. Interest accrues and is paid by the buyer from the date of auction until closing. No extended marketing time as an REO property. Avoid buying back undesirable or troubled properties. None of the other burdens of ownership.

Therefore, if the value of the property will not increase by the lender taking it back and owning it, the decision should be to simply sell the asset for the highest price at the foreclosure auction. There are many situations that lend themselves to using the foreclosure auction to the lender’s benefit. They include:

Multiple Parcels of Land – The most unique feature of an auction is the use of the “individually and in combinations”, “par bidding”, and “high bidders choice” auction methods. To illustrate the first method, lets assume a property is comprised of 26 building lots. The auctioneer can offer at auction each building lot, then offer them in any variety of combinations, and only accept the bids that realizes the lender the highest net proceeds. Some jurisdictions may require an offer in separate parcels and

en gross in an effort to maximize the sale proceeds. This is an excellent way to encourage individual lot buyers and builders to bid against each other, thus driving up the net realized by the lender. With Par Bidding, the auctioneer will give the high bidder in the first round of bidding the opportunity to “take one or take them all”. This encourages the first round of bidding to bring in the highest price so the market is set high by the bidders for the rest of the auction (if the first buyer does take them all). With High Bidders Choice, the high bidder in the first round of bidding gets to choice which lot they want to buy, like Par Bidding, but they only can buy one lot per round of bidding. The benefit of this auction method is the ability to have bidders interested in several different lots bidding against each other for the right to choose the lot they want to buy. Therefore, all land should be sold at the foreclosure auction since the lender can benefit from a variety of auction techniques not available to real estate brokers. Auction methods that are undertaken to maximize the purchase price will be supported by the courts in any subsequent challenge to the foreclosure sale provided the methods are reasonable, not confusing, and calculated to yield the maximum price.

Environmentally Impacted Property – A lender should dispose of this type of property at the foreclosure sale to avoid the long term liability of taking the property back as an REO and having their name in the chain of title. Although there are exceptions to liability for the clean up costs of environmentally contaminated property when a lender acquires title as a result of its effort to enforce a mortgage, these exceptions are of little comfort when the lender is named as a defendant in an action to either compel the clean up or recover the costs associated with the clean up.

Leased Commercial Property – Since an investor is your most likely buyer of any income producing commercial property, your best bet will be to sell the property for an acceptable cap rate price at the auction. Unless the lender can reposition a property after becoming an REO i.e. repairing the property and leasing it up to add value, the surest way to realize market value is to market and sell the property at the foreclosure auction.

Multi-Family Property with Tenant Rights Issues – In many cities, the rights tenants have over property owners prevents many good brokerage deals from ever happening. For instance, in Washington, DC, tenants can literally stop a general brokerage sale from occurring by simply matching an offer accepted by the seller and “trying” to get financing. In most of these cases, the tenants have no intentions of buying the building. They just want free rent or money to suddenly “lose interest” in the purchase. Unfortunately, this maneuver is common practice in some urban areas. However, the one caveat to being held hostage to tenants is to sell the property at the foreclosure auction where they have no rights. The buyer knows they will not have to payoff the tenants and the lender knows that it can close in 30 days, not 12 months.

While there are other situations whereby the foreclosure auction can be an excellent loan recovery tool, the above referenced cases should not be overlooked. Logistically Positioning a Property for a Successful Foreclosure Auction

Now that the decision has been made to sell the property at the foreclosure auction, there are four steps to take after a report of title has been obtained verifying ownership of the property and the existence of the mortgage lien or any other liens. First, hire an experienced foreclosure attorney and a professional real estate auction company that knows how to position a property for a successful foreclosure auction. Relevant experience would include working with adversarial borrowers and selling unique or troubled commercial real estate at auction.

Second, work with your foreclosure attorney to obtain the most cooperation you can from the borrower. This includes receiving copies of leases, accurate rent rolls and operating expenses, permission to post a foreclosure auction sign on the property, and access to the property for bidder inspections and an on-site foreclosure auction day. The more cooperation you receive from the borrower and the more information bidders know about the property, the higher the price at the foreclosure auction. The lender may consider an agreement with the borrower that in effect renders the note non-recourse as to the borrower in exchange for the borrower’s cooperation in bringing the property to foreclosure.

Third, it may be in your best interest to order an appraisal, environmental report, survey, and/or an engineering report on the property to disclose to buyers to assist them in their due diligence. If the information is available, it should be provided to prospective bidders prior to the auction. However, this is a legal and marketing decision that should be made between the auction company, foreclosure attorney, and lender.

Finally, invest in an auction marketing campaign that will generate significant interest in the property. Prepared by the auction firm, this campaign will focus on attracting the target market to the property by attention-grabbing newspaper advertisements, first class direct mail, high quality brochures, informative property information packages, telemarketing, Internet marketing, and signage. It is important to note that the marketing budget will be in addition to the cost of any required legal notices. Legally Positioning a Property for a Successful Foreclosure Auction

Foreclosure is a drastic remedy, the requirements of which vary from state to state. Because the result of a foreclosure is to divest the owner of the property from title to the property, care must be undertaken to ensure that the foreclosure complies with all provisions of the loan documents and all applicable state and federal statutes.

Some states provide for non-judicial foreclosure whereby a third party conducts an auction pursuant to a power of sale contained in a deed of trust with only minimal involvement by the court, others have quasi-judicial foreclosures where the sale is still conducted by a third party via a power of sale, however, the courts monitor and regulate the foreclosure process, and still other states have judicial foreclosures that require an adjudication of the indebtedness and a decree from the court ordering the foreclosure sale.

Because of the vagaries of the various state statutes concerning the foreclosure of real property, we will focus on the foreclosure auction sale itself and assume that the sale is being conducted pursuant to a power of sale contained in a deed of trust or after entry of a decree ordering the foreclosure sale in a judicial foreclosure state. If the foreclosure sale has not been conducted in compliance with all loan documents and all governing statutes, the lender’s efforts to maximize the value of the real property at foreclosure auction will have been in vain.

Because of the costs and time associated with foreclosure sales, lenders may consider taking title by way of a deed in lieu of foreclosure. A deed in lieu of foreclosure is a voluntary conveyance of the property subject to the mortgage lien back to the secured lender in either whole or partial satisfaction of the debt. When a senior mortgage or lien is foreclosed, all the junior liens and mortgages are extinguished (with some statutory exceptions). In some states, a deed in lieu of foreclosure may the same effect on extinguishment of junior liens as a sale by foreclosure, nonetheless, the most prudent assumption should be that a conveyance pursuant to a deed in lieu of foreclosure conveys title subject to all encumbrances and that only the foreclosure sale itself effectively purges the title of the subordinate liens.

Because the deed in lieu of foreclosure may not extinguish subordinate liens on the property, the lender whose borrower is willing to transfer title via a deed in lieu of foreclosure should consider what is typically termed a friendly foreclosure. A friendly foreclosure is nothing more that a regular foreclosure whereby the borrower agrees not to contest the foreclosure or declare bankruptcy in exchange for some type of accommodation by the lender, typically either full or partial forgiveness of any remaining debt. By conducting a friendly foreclosure, the lender is able to advertise the foreclosure sale as required by the deed of trust and local statutes, and also market the property via the use of a professional licensed auctioneer. Taking title to the property via a deed of lieu will expedite the transfer of title to the lender, however, finding a buyer and liquidating the REO will require additional time and expense. Use of the friendly foreclosure will permit the lender to conduct the foreclosure against the property and purge the real estate of any subordinate liens, while also allowing the lender the opportunity to aggressively market the property in an effort to maximize the price at the foreclosure sale and perhaps dispose of the property altogether by a sale to an third party.

Use of a professional auctioneer and employment of marketing advertisements beyond the minimum required by the mortgage and applicable state statutes may also provide additional protection for the foreclosing lender should the borrower seek to challenge the propriety of the foreclosure sale. In a subsequent lawsuit to set aside the foreclosure sale, the court may very well take into consideration that the property was extensively marketed by a professional auctioneer. There are cases where the lender or trustee conducting the foreclosure may have made some type of minimal error in the form, content, or scheduling of the legally required advertisements, but the court, in reviewing the totality of the notice and advertisements, concluded that there as no harm because of the number of potential bidders present who were brought to the sale as a result of marketing by the auctioneer.

Use of a professional auctioneer serves an additional purpose besides maximizing the audience of potential qualified bidders and providing insulation should there be subsequent challenge to the propriety of the foreclosure sale. A borrower who is aware of the lender’s efforts to market the property and the use of an auctioneer with advertisements being circulated in pertinent trade publications will realize that the lender’s intention to foreclose is serious and that the borrower needs to address the loan default immediately or risk losing his or her property. Conclusion

By using these techniques, the final result should be the disposition of your troubled assets to a third party buyer, the recovery of the maximum amount of your loan in the shortest amount of time, avoidance of major property ownership problems, and an overall cost savings to the lender and even the borrower.

About the Authors: Stephen M. Karbelk, George Mason University, B.S., 1992, World Wide College of Auctioneering, 1998, is Vice President of the Virginia Beach, Virginia auction firm - Fox & Associates. Mr. Karbelk specializes in the sale of commercial real estate and equipment at auction for SBA lenders, banks and mortgage companies nationwide. Alexander M. Laughlin, James Madison University, B.S. 1981, Gonzaga University School of Law, J.D. 1985, is a principal of the Alexandria, Virginia law firm of Gold Stanley Morrison & Laughlin, PC where he concentrates his practice in the areas of problem bank loan litigation and foreclosure actions. In addition to his status as Associate Editor of The Bankruptcy Protector, Mr. Laughlin is also a contributing author on the subjects of foreclosure and repossession for the Virginia Continuing Education Committee of the Virginia Law Foundation.

August  27,  2013  

   

Missing  the  Conversation  Why  the  National  Auctioneers  Association  must  become  a  Trade  Association  

 By  Stephen  Karbelk,  CAI,  AARE  

 Since  it’s  inception  in  1949,  the  National  Auctioneers  Association  (NAA)  has  been  a  member-­‐based,  non-­‐profit  organization  focused  on  serving  the  needs  of  its  auctioneer  members.    The  stated  mission  today  is  that  “The  National  Auctioneers  Association  exists  to  provide  critical  resources  to  auction  professionals  that  will  constantly  enhance  their  skills  and  success.”    While  this  member  focus  may  help  with  providing  education  and  support  to  auctioneers,  the  NAA  does  not  effectively  shape  the  industry  we  are  in  –  the  auction  industry.    Unless  the  NAA  is  part  of  the  worldwide  conversation  about  auctions,  the  NAA  will  continue  to  become  less  and  less  relevant  as  an  association  meaningful  to  auctioneers  and  the  future  of  the  auction  industry  will  weaken.        Understanding  the  Conversation  Auctions  as  a  sales  method  have  always  had  a  stigma  associated  with  them.    They  have  either  been  associated  with  the  negativity  of  “distress  sales”  or  associated  with  the  glamour  of  the  “highest  prices  every  paid”.      Auctions  have  a  jaded  past,  with  the  sale  of  slaves  at  auction,  and  a  glorious  past  with  Rome  being  sold  at  auction  to  Didius  Julianus  in  193  CE.    Now  auctions  are  being  defined  by  other  types  of  auction  methodology,  such  as  the  permanent  insertion  of  online  auctions  into  our  industry.    With  “non-­‐auctioneers”  running  online  auctions,  there  are  people  that  don’t  have  the  emotional  ties  to  our  auction  history  defining  what  an  auction  is  and  how  it  should  be  conducted.        Finally,  and  perhaps  most  importantly,  Reality  TV  shows  and  social  media,  are  defining  the  auction  industry.    There  are  some  shows  that  positively  showcase  the  auction  process,  such  as  “Mecum  Car  Auctions”  and  “Barrett  Jackson  Classic  Car  Auctions”,  and  other  shows  that  trivialize  the  auction  process,  such  as  “Storage  Wars”.    Then  the  newest  Reality  TV  Show  called  “Bidding  Wars”,  a  show  about  a  Realtor  that  conducts  auctions  through  a  competitive  bidding  process  when  he  purposely  lists  a  house  at  a  below  market  price  so  he  can  get  multiple  offers.    As  a  Realtor  (not  an  auctioneer)  he  manages  a  multiple  offer  situation,  creates  a  “bidding  war”  and  then  sells  the  property  to  the  highest  bidder.    The  message  is  that  an  auctioneer  isn’t  needed  to  conduct  an  auction  when  a  Realtor  can  do  it  just  fine.        

August  27,  2013  

The  conversation  continues  on  social  media  through  Facebook,  Twitter,  and  Google  searches.    Before  we  make  a  buying  decision,  each  of  go  online  and  do  some  research.    I  encourage  you  to  Google  these  questions:    

• “Should  I  auction  my  property?”  • “Do  auctions  bring  fair  prices”  • “Should  I  buy  at  an  auction?’  

 These  are  all  generic  questions  about  the  auction  process  and  not  specific  to  any  one  vertical  market.  What  you  will  notice  should  be  alarming.    First,  the  NAA  has  no  presence  in  any  part  of  this  conversation.    Click  through  search  after  search  and  you  won’t  find  any  article  about  these  fundamental  topics  relevant  to  our  industry.    Second,  Realtor.org  comes  up  on  the  first  page  of  the  first  question  with  Realtor.org,  not  the    NAA  defining  the  benefits  of  a  real  estate  auction.    While  we  may  have  some  influence  over  what  they  say,  it  should  be  problematic  for  our  industry  to  accept  that  another  association  is  defining  the  benefits  of  our  process.        When  there  is  an  opportunity  for  a  prospective  seller  or  buyer  to  learn  more  about  the  auction  process,  and  they  turn  to  the  Internet  for  answers,  the  NAA  is  not  part  of  that  conversation  either.      And  when  a  prospective  seller  or  buyer  is  watching  TV,  and  they  come  across  an  auction  related  TV  show,  the  NAA  has  no  part  of  that  conversation  either.        While  the  NAA  may  be  providing  educational  services  to  its  members,  they  have  no  part  in  defining  the  very  industry  they  are  teaching  its  members  to  be  part  of.      Auctioneer  Education  Has  Its  Limits  The  NAA  is  fooling  itself  by  continuing  to  go  down  its  current  path  of  just  focusing  on  auction  education.    The  NAA  tries  to  provide  the  best  educational  resources  to  its  members  but,  in  reality,  it  doesn’t.    The  NAA  simply  facilitates  the  distribution  of  information  from  one  auctioneer  to  another.    The  NAA  does  not  teach  auctioneers  directly  nor  does  it  generate  any  new  research  about  auctions,  develop  best  practices  for  all  types  of  auctions,  establish  standard  operating  procedures  for  successful  auctions  or  generate  any  cutting  edge  auction  education  materials.      Unfortunately,  the  educational  programs  offered  will  never  be  as  good  as  they  could  be  because  the  materials  come  from  competing  auctioneers  and  your  competitors  will  never  teach  other  auctioneers  what  they  really  need  to  know  to  be  successful.      When  the  Board  sits  around  thinking  about  how  to  make  the  educational  programs  better,  they  will  talk  about  making  the  programs  better,  but  nobody  ever  wants  to  be  the  one  to  do  it.    If  you  think  that  is  going  to  change  anytime  soon,  then  you  are  sorely  misguided.      

August  27,  2013  

This  is  not  meant  to  say  that  the  educational  programs  should  be  abandoned.    The  current  educational  and  designation  programs  offered  are  valuable  and  they  should  be  continued.    But  for  the  association  to  continue  to  rely  on  its  current  model  (auctioneers  teaching  auctioneers)  and  think  that  the  programs  are  going  to  somehow  teach  every  auctioneer  how  to  everything  they  need  to  know  is  a  mission  destined  to  fail.      We  have  to  accept  that  the  educational  programs  will  always  have  a  limit  on  their  content  and  the  rest  of  the  important  content  will  come  from  the  companies  the  individual  auctioneers  work  for  or  the  mentors  they  work  with.    While  can  improve  the  delivery  of  the  content  through  online  programs  and  make  the  cost  of  the  classes  even  more  affordable,  that  should  not  be  the  primary  mission  of  the  association.      Being  part  of  the  auction  conversation  is  much  more  important.        What  Other  Conversations?  Not  only  are  there  many  important  conversations  happening  about  auctions  that  the  NAA  is  not  part  of,  there  are  conversations  that  should  be  started.        For  instance,  in  the  real  estate  industry,  the  Consumer  Finance  Protection  Board  is  implementing  Regulation  Z  in  January  2014.    This  is  a  regulation  that  directly  impacts  how  short  sales  of  residential  real  estate  are  managed.    There  has  not  been  any  conversation  about  how  this  regulation  impacts  our  industry,  even  though  it  impacts  every  bank  client  each  auctioneer  has.    When  you  read  the  regulation,  you  will  see  that  there  are  very  specific  rules  that  must  be  followed  that  impact  how  we  do  business.    And  the  NAA  has  not  had  any  influence  on  those  rules.      Our  association  does  not  track  or  publish  any  industry  statistics.    Auction  business  owner  have  no  data  from  the  association  upon  which  to  base  any  business  decisions  concerning  the  direction  of  the  auction  market  place  either.    This  puts  our  members  at  a  real  disadvantage  when  trying  to  manage  their  businesses.        Members  have  no  idea  if  other  real  estate  auctioneers  are  signing  more  auctions  or  less  auctions,  are  they  selling  more  online  or  live  on-­‐site,  are  they  seeing  higher  sell  thru  rates  or  less,  are  they  seeing  more  or  less  registered  bidders,  etc…    We  have  no  industry  data.  All  you  can  do  is  go  Conference  &  Show  and  ask  around  to  find  out  how  people  are  doing.    And  occasionally  an  auctioneer  will  post  on  their  Facebook  page  about  how  they  are  having  trouble  finding  new  auction  listings  and  asking  if  anybody  is  helping  any  problems.    That’s  how  it  was  done  in  the  1950’s,  not  today.        The  other  auction  related  trade  associations  that  focus  on  auto,  cattle  and  antiques  publish  industry  related  materials,  such  as  sales  prices,  but  the  NAA  has  not  part  of  those  conversations  either.    Keep  in  mind  that  the  publishing  of  data  about  your  industry  is  one  of  the  most  influential  parts  of  the  conversation.        

August  27,  2013  

We  have  also  seen  our  membership  shrink.    We  can  speculate  all  we  want  about  why  that  is  the  case,  but  I  can  say  that  the  NAA  is  not  part  of  the  conversation  about  why  to  become  an  auctioneer  and  the  promoting  of  the  auction  business  as  a  career  choice.        Again,  turn  to  Google  and  search  “Do  auctioneers  make  a  good  living?”    There  is  no  industry  level  commentary  on  this.    It  all  comes  from  other  sources.    Fortunately,  the  NAA  comes  up  when  you  ask  about  how  to  become  an  auctioneer,  but  that  is  the  second  question  asked  after  somebody  has  decided  to  pursue  auctioneering  as  a  career.          In  terms  of  industry  statistics,  the  NAA  should  be  tracking  and  publishing  the  number  of  students  going  to  auction  school  per  quarter,  what  are  the  trends,  is  the  demographic  of  the  typical  student  changing,  etc…    The  NAA  should  be  publishing  data  about  the  demographics  of  the  average  auctioneer  per  vertical  market,  average  income,  average  company  size,  etc…    This  information  will  give  the  owners  of  auction  businesses  a  baseline  upon  which  to  assess  themselves.        Finally,  the  association  should  be  publishing  quarterly  numbers  about  sales  and  activities  of  the  entire  industry.    None  of  knows  if  sales  are  up,  down  or  flat.    We  have  no  research  from  our  own  association  upon  which  to  base  any  business  investment  decisions.        Controlling  the  Conversation  leads  to  Influence  The  NAA  is  irrelevant  in  the  conversation  about  auctions.    It’s  stated  purpose  of  providing  education  to  auctioneers  so  those  auctioneers  can  go  try  to  shape  their  industry  is  the  reason  why.    If  you  don’t  believe  me,  ask  yourself  when  the  last  time  the  NAA  published  anything  that  was  newsworthy.      Exactly.    Whoever  is  controlling  the  conversation  is  the  person  in  charge.    If  the  NAA  were  to  expand  its  mission  to  make  the  conversation  about  auctions  its  purpose,  then  the  NAA  would  become  a  relevant,  influential,  international  organization  that  all  auction  companies  –  big  or  small  –  would  want  to  be  part  of.    But  the  current  model  is  destined  to  continue  to  fail.    The  reason  is  simple.    Instead  of  all  of  us  banding  together  as  one  with  one  voice  to  influence  our  industry,  the  association  is  intentionally  pushing  the  responsibility  of  defining  our  industry  down  to  each  of  its  members.    So  intend  of  harnessing  the  power  of  all  for  one,  the  association  management  has  deleveraged  its  power,  making  it  a  free  for  all  instead  of  professionally  shaping  the  conversation.        Each  member  will  do  all  they  can  to  promote  auctions  in  their  community  but  unless  all  of  the  community  voices  have  one  national  voice,  somebody  else  will  control  the  destiny  of  the  auction  industry.          

August  27,  2013  

The  Next  Step:  The  NAA  as  a  Trade  Association  For  the  NAA  to  control  the  conversation,  the  association  needs  to  transition  from  being  a  member  services  only  association  to  being  a  trade  association.        The  definition  of  a  trade  association  is:    

A  trade  association,  also  known  as  an  industry  trade  group,  business  association  or  sector  association,  is  an  organization  founded  and  funded  by  businesses  that  operate  in  a  specific  industry.  An  industry  trade  association  participates  in  public  relations  activities  such  as  advertising,  education,  political  donations,  lobbying  and  publishing,  but  its  main  focus  is  collaboration  between  companies,  or  standardization.  Associations  may  offer  other  services,  such  as  producing  conferences,  networking  or  charitable  events  or  

offering  classes  or  educational  materials.  Many  associations  are  non-­‐profit  organizations  governed  by  bylaws  and  directed  by  officers  who  are  also  members.  (Wikipedia)  

 Please  read  this  definition  carefully,  digest  every  word  and  reflect  on  what  it  means  to  be  a  trade  association.    And  then  think  about  what  it  would  mean  for  the  future  of  the  entire  auction  industry  if  the  NAA  became  an  effective  trade  association.        When  you  reflect  on  what  “industry”  each  of  us  are  in,  each  of  us  is  in  at  least  two  industries,  not  one.    If  you  sell  cattle  at  auction,  you  are  in  the  cattle  industry  and  the  auction  industry.    If  you  sell  real  estate  at  auction,  you  are  in  the  real  estate  industry  and  the  auction  industry.    But  what  we  need  now  is  a  trade  association  that  advocates  for  the  auction  process.    As  a  trade  association,  the  NAA  would  be  able  to  control  the  conversation  about  auctions  and  help  each  of  its  business  members  have  a  much  more  secure  future  in  the  industry  through  advertising,  education,  political  donations,  lobbying  and  publishing  about  the  auction  industry  while  also  implementing  standardizations  processes  that  create  a  foundation  for  all  auction  businesses  to  grow.        Conclusion  The  NAA  needs  to  become  a  trade  association  that  represents  the  interests  of  the  auction  method.      Other  trade  associations  are  already  representing  us  in  our  field  of  expertise,  such  as  the  NADA,  NAR  and  NCBA.    But  no  association  represents  the  interests  of  the  auction  method.        Reality  TV  shows,  social  media  and  inherent  reputational  stigmas  around  the  word  “auction”  dominate  our  society  today,  defining  who  we  are  with  nobody  answering  back  with  an  equally  strong  voice.    Only  together,  as  one  trade  association  with  one  voice,  can  we  define  who  we  are  and  what  we  do.    This  is  why  we  need  to  be  in  control  of  the  conversation.          

5

Winter 2006 • Issue 20

A Publication of the

California Receivers Forum

RECEIVERSHIP

I n s i d e

Seminar on

Receivers,

Provisional

Directors and

Special Masters

Draws 50 in

Downtown LA

13 Receivership

Professional Profile

Dan Close

12 Ask the Receiver

8First Ever CRF Panel

Seminar Presented

For Inland Empire

Receivership

Professionals

9 The List

NEWS

n the course of administering a receivershipestate, a receiver may be granted power by theappointing order to dispose of a commercialreal estate asset. Even absent authority tomarket and sell the property, the receiver can

always enhance the prospect of the property’s ultimatesale or accelerate the timing of a sale by preparing andorganizing information for ultimate delivery toprospective purchasers or real estate brokers. Bothgroups will benefit from the receiver’s knowledge gleanedfrom operating the property. What information will behelpful to the marketplace?

I

Commercial Real EstateDispositions 101: A Primerfor ReceiversBY KEVIN P. CAVANAUGH, CPA*

Auctions: Resolving the“Distressed Receiver’s Dilemma”BY MIKE WALTERS AND STEPHEN KARBELK*

Continued on page 2...

aving worked with many receiversaround the country, and havingoccasionally served as receiver, wehave come to identify what we call the “Distressed Receiver’s

Dilemma.” Like being the fifth person on adouble date, a receiver sometimes has troublebecoming comfortable in certain situationsbecause of the high level of scrutiny afforded areceiver’s actions and the actual and potentialliabilities every receiver takes on.

A commonplace distressed situation ariseswhere a lender seeks and the borrowers contestappointment of a receiver over a sub-standardand mostly vacant apartment building, forexample, or over a shopping center that has lostits anchor and the smaller tenants have

vacated. The borrowers/defendants think theycan turn the property around, but thelender/plaintiff no longer trusts the borrowersand wants an independent agent to takecontrol. Add to this contentious situation thefact that potential purchasers of the propertyalready smell blood in the water and want to tryto steal the property at a bargain price through aquick, non-competitive sale.

In addition to these competing agendas,there is also the compensation dilemma. If areceiver facilitates a quick sale, he or she maybe criticized for insufficient marketing.

But if the receiver takes his or her time inmarketing the property, incurring fees in theinterim to maintain the property, she or he may

H

S P E C I A L R E A L E S T A T E M A R K E T I N G I S S U E

Continued on page 7...

Winter 2006 • Page 7

Continued from page 1.

Auctions: Resolving...

be accused of milking the estate. Hence,the Distressed Receiver’s Dilemma is born.How can a receiver avoid these pitfalls?

In his Receivership News article in thisissue, Kevin Cavanaugh, a CPA with theDouglas Wilson Companies, explains how areceiver can facilitate marketing of aproperty by (a) assembling a detailedproperty information package (with plentyof disclaimers), (b) extractingconfidentiality agreements from prospectivepurchasers and brokers, and (c) vettingqualifications of prospective buyers.

An interesting aspect of this articleunderscores the Distressed Receiver’sDilemma – the cautionary tone Mr.Cavanaugh adopts with respect to thereceiver’s marketing actions, which isessentially to protect thyself first, andrightly so. The potential for a receiverbeing sued when thrust into a tinderbox oflitigation is significant. We all know thatno receivership appointment is worthmaking one’s life miserable.

The Distressed Receiver’s Dilemma willnever go away because it is the essence ofbeing a receiver – occupying the middleground between disputing parties. Thereare certain important choices the receiverof a distressed property can make tominimize his or her legal exposure,however, while doing what is best for theproperty and all interested parties.

Private or Public Sale?

For some reason, there is a generalmisconception that a general brokeragetransaction is the safe way to sell realproperty. One assigns a listing price, placesthe property in the multiple listing services,and waits for the offers to come streamingin. While this process does work when thebroker has only one client to satisfy, such aswhere a non-distressed seller wants to sellan asset at a particular price, the processdoes not work especially well in contentiousreceiver’s sale situations. There are severalreasons why this is so:

1. The Listing Price Dilemma. If theReceiver has market knowledge andauthority to market and sell theproperty, the first step is to decide on thelisting price. This is fairly easy for astabilized property with an easily

identifiable cap rate. But where theproperty is in distressed condition, lacksany relevant income, and is hemorragingmonthly losses, the Listing PriceDilemma becomes much more serious.The lender unwillingly funding themonthly losses may want a low listingprice to get the property sold quickly,but the borrower, who may be exposedon a personal guaranty, will want a highlisting price. If the lender’s argumentsprevail, the property may sell for toolittle, leaving a substantial amount ofequity on the table. If the borrower’sarguments win out, the listing price maybe set too high and the property will notsell, resulting in a stagnant listing andever-mounting losses.

2. The Preservation Dilemma. Receiversare generally prohibited from improvingproperty under their care, but they maytake steps necessary to preserve it. Aleaking roof may need to be repaired tokeep the property from deterioratingduring the receiver’s possession. On theother hand, maybe the best way toremedy the deficiency is to put on a newroof. The Receiver must often decidewhat needs to be done, and to whatextent, to preserve a property’s value. Iimagine all receivers have lain awake atnight worrying whether he or she madethe right decision to not incur anexpense as necessary for propertypreservation. Should the receiverremediate actual or suspected mold?Should the receiver remove thepotentially/ actually leakingunderground storage tank? Should thereceiver perform a build-out as acondition to attracting a tenant? And, ifso, will the receiver be able to recoverthe amount spent? Should the receiverleave the work to be done by anysubsequent buyer?

3. The Sales Price Dilemma. If thereceiver receives an offer to purchase,the receiver then has to decide if theoffered price is defensible. In his article,

Mr. Cavanaugh writes that “marketknowledge equals power” as it relates todeciding whether to accept an offer.The dilemma lies in deciding whether ornot the price offered is a market price.Was an appraisal done? Were multipleoffers received? What is the receiver’smarket knowledge and why is thatknowledge better than someone else’sidea of the “market value” of theproperty? It might sound heretical toassert such questions but the reality isthat any claim to possession of allmarket knowledge necessary to make anabsolute judgment as to market value isprobably an exaggeration.

In a hotly contested litigation situation,

privately marketing and selling a propertymay actually increase the potential liabilityof a receiver. He or she could list theproperty at the wrong price, could choose tomake changes to “preserve” the propertylater deemed to be improvements where thecosts are never fully recovered, and mightimprudently decide to accept a purchaseoffer that proves demonstrably below truemarket in hindsight or by way of a sellingprocess later claimed to be notcompetitively driven.

There is an alternative way of sellingthat avoids some or most of these problems.Selling a property by auction avoids theseimponderables and, if done properly, assuresthat the maximum market value will beachieved.

Sale Structure

Employing a professional auction firmto assist in developing comprehensivebidding procedures enhances acompetitive sale. A level playing field isnecessary to create a competitive biddingenvironment. When the terms of the saleare pre-defined, potential buyers do nothave an opportunity to independently

“The Distressed Receiver’s Dilemma will never

go away because it is the essence of being a

receiver – occupying the middle ground

between disputing parties.”

Continued on page 9...

WHILE THERE IS NO COURT-APPROVED LIST OF RECEIVERS, THE FOLLOWING

IS A PARTIAL LIST OF RECEIVERS WHO ARE MEMBERS OF THE CALIFORNIA

RECEIVERS FORUM AND HAVE CONTRIBUTED TO THIS PUBLICATION.AREA PHONE E-MAIL

Bay Area

� David A. Bradlow 415-206-0635 bradlow@davidbradlow.com�� Kyle Everett 415-981-2717 keverett@dsi.biz� Dennis P. Gemberling 415-434-0135 dpg@perrygroup.com

David A. Summers 925-933-2875 Davidsummers8@aol.comRobert M. Rouse 650-592-3960 brouse@wres.com

• Donald G. Savage 510-547-2247 donald.savage@worldnet.att.net� Steve Siljestrom 925-254-7674 siljestrom@the-stevens-group.com

Douglas P. Wilson 415-439-5202 dwilson@douglaswilson.com

Sacramento Valley

��• Marilyn Bessey 877-930-9600 Marilyn.Bessey@eFMT.comRobert C. Greeley 916-484-4800 rgreeley@greeley-group.com

��• Beverly N. McFarland 916-783-3552 beverlygroup@att.net��• J. Benjamin McGrew 916-482-5100 jbmcgrew@receivertrustee.com��• Scott Sackett 877-930-9600 Scott.Sackett@eFMT.com� Kevin J. Whelan 916-783-3552 kwhelan.beverlygroup@att.net

Fresno Area

� Clifford Bressler 559-298-1089 cliffordbressler@earthlink.net�• Steve Franson 559-930-8119 steve@stevefranson.com� James S. Lowe II 559-269-0484 jslowe@lemoorenet.com�• Hal Kissler 559-435-1756 hkissler@mancoabbott.com

Los Angeles/Orange County/Inland Empire

��• Edythe L. Bronston 818-528-2893 ebronston@bronstonlaw.com• Weldon L. Brown 909-682-5454 weldon@weldonbrown.com

Linda J. Chu 213-688-1300 Lchu@Ljchutrustee.comRobert Crane 949-646-2903 rcrane6586@aol.com

�� James H. Donell 310-207-8481 james.donell@jalmar.com�� Steve Donell 310-207-8481 steve.donell@jalmar.com

Dean Duncan 714-751-2787 dean@jdproperty.comHoward Ehrenberg 213-626-2311 hehrenberg@sulmeyerlaw.com

� Robb Evans & Assoc. 818-768-8100 robb_evans@robbevans.com� Louis A. Frasco 818-725-2500 uclabill@yahoo.com

AREA PHONE E-MAIL

Los Angeles/Orange County/Inland Empire

Burdette Garvin 909-885-0934 awlbudgarvin@aol.com�• David A. Gill 310-277-0077 dag@dgdk.com• Gary Haddock 310-306-6789 garyhaddock@playavistausa.com� Randal Lee 323-930-2671 rjlee@ccim.net� Richard E. Lucy 310-247-2277 relucy@crosswindcapital.net

Michael D. Myers 909-398-4200 mmyers3395@aol.com�• George R. Monte 626-930-0083 montegr@aol.com�• Douglas C. Morehead 949-852-0900 doug@optimaasset.com��• Robert P. Mosier 714-432-0800 rmosier@mosierco.com� William E. Nix 818-725-2500 uclabill@yahoo.com��• David J. Pasternak 310-553-1500 djp@paslaw.com�• James L. Peerson, Jr. 323-954-7575 peergroupcrop@sbcglobal.com� Theordore G. Phelps 213-629-9211 tphelps@phelpsconsulting.com�� Gary A. Plotkin 818-906-1600 gplotkin@prnlaw.com��• David L. Ray 310-481-6700 dlr@srblaw.com� Thomas A. Seaman 949-222-0551 tom@thomasseaman.com� Kevin Singer 310-552-9065 receiverspecialist@sbcglobal.net• Steven M.Speier 949-222-2999 sspeier@squarmilner.com�• William E. Turner 714-228-9153 wturner145@aol.com�� David D. Wald 310-979-3850 dwald@waldrealtyadvisors.com��• Robert C. Warren III 714-708-0180 rob@investorsHQ.com��• Richard Weissman 818-226-5434 rweissman@rwreciever.com� J. Scott Williams 949-263-2600 J.Scott.Williams@bbklaw.com� John M. "Jack" Wolfe 949-476-2696 jackwolfe@aol.com�• Adrian Young 909-945-4586 adrian@delmar1.com

Andrew R. Zimbaldi 714-751-7858 azimbaldi@aldenmanagement.com

San Diego Area

�� M. Daniel Close 858-792-6800 closeedr@msn.com��• Mike Essary 858-560-1178 calsur@aol.com��• Martin Goldberg 858-560-7515 marty@cni4you.com• William J. Hoffman 858-720-6700 bill.hoffman@trigild.com• Richard M. Kipperman 619-668-4500 rmk@corpmgt.com

Douglas P. Wilson 619-641-1141 dwilson@douglaswilson.com• The bullet indicates those receivers who completed a

comprehensive 16-hour course on receivershipadministration and procedures presented at Loyola Law School in April 2000.

� The diamond indicates those receivers who completed acomprehensive 16-hour course on receivershipAdministration and procedures presented at Loyola Law School in October 2004.

� The square indicates those who facilitated theOctober 2004 Loyola Law School course.

THE LIST

negotiate responsibility for the myriadcosts, expenses and closing items thatoften make evaluating competing privatesale offers a comparison between applesand oranges.

Having the appointing court approvethe auction procedures in advance of sale,including terms of sale, depositrequirement, closing period, allocation ofescrow and title charges and other costsensures a level playing field, theunquestionable legitimacy of the saleprocess and protects professionals againstliability that may result from the potentialinfirmities of a traditional sale process.

Caveat Emptor (but here is

everything we know)

Everyone knows the three mostimportant elements of value in real estate:

location, location and location. For thereceiver selling a distressed asset the threemost important elements of avoidingpotential liability are: disclosure,disclosure and disclosure.

Part of a true competitive biddingenvironment is for every participant to beprovided the same information. Byemploying a professional auction firm todevelop (and assist in developing) aProperty Information Package (“PIP”), areceiver can be certain that full anduniform disclosure has been made. It iscustomary prior to the bidding process tohave auction buyers acknowledge inwriting receipt of all PIP documents and,again in writing, to accept responsibilityfor their own due diligence. This shiftsaccountability from the receiver to thebuyer, unless some pertinent informationknown to the receiver has been withheld.

(This concludes Part I of “Auctions: Resolvingthe Distressed Receiver’s Dilemma”! Theconcluding portion will appear in the Spring,2006 issue of Receiverhip News.)

Winter 2006 • Page 9

*MIKE WALTERS, seniorpartner of Tranzon AssetStrategies, a financial companyspecializing in real estate sales, isalso a member of Tranzon, LLC,an auction marketing companywith 20 offices nationwide.

*STEPHEN KARBELK is apartner of Tranzon Fox, aTranzon, LLC affiliated companyspecializing in real estate marketingand sales in the mid-Atlanticregion.

Stephen Karbelk

Mike Walters

Continued from page 7.

Auctions: Resolving...