Trustee Blog

Aggressive Investors in Bankruptcy Cases

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Chapter 7 Bankruptcy Trustee Howard Grobstein told me last time that he is starting to get inquires from people to purchase assets that the Trustee holds. In particular, assets such as fractionalized interests to strip malls or other commercial buildings.

He explained that sometimes a debtor will file a chapter 7 bankruptcy case and list an interest in the the schedules as say 17% interest in a commercial building. The building may be a strip mall or small building that leases space to tenants. With property values down, the total value of the property may have been less than the amount owed on the property and the sites had few tenants so the property was not worth administering for the bankruptcy estate. On top of that it is very hard to sell only 17% interest in the building as few investors want to put up with other people owning 83% of the building.

Mr. Grobstein said that while the above scenario had been the norm, now investors are soliciting bankruptcy trustees for those interests. Commercial property values are increasing and tenant occupancy rates are increasing, so these investments are much more attractive.

Trustee Grobstein had a sale on one of these last month and more are on the way.

One can only imagine the fighting that will be going on with the new 17% owners and the 83% owners. These must be some aggressive investors to step into such a potentially hostile situation. While the 83% owners had control over who had the 17% initially, the 83% have no control over who is now an owner after the trustee sells the 17% to a third party.

Practice Pointers:

My suggestion is to ask your clients if they have these interests in order to disclose the interests in the bankruptcy petition. If they do have these interests, then warn them about these aggressive investors.

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