Bankruptcy auctions are filled with terminology and procedures somewhat foreign to the average investor; however, with a basic knowledge of the industry, a first time buyer can not only reduce risk but also close a phenomenal deal.
In United States bankruptcy cases, a sale of an asset of a bankruptcy estate requires a court order. A trustee files an application with the Bankruptcy Court, asking the court to order the sale of the asset. When the judge signs the order, the noticing period—or period of time that the asset must remain accessible for public viewing prior to the sale—begins. The noticing period varies in length, but lasts on average 20-30 days.
As a buyer, the noticing period is an often under-utilized tool. This is the optimal time for buyers to perform their due diligence, by researching the asset on their own. Most bankruptcy assets are sold “as is, where is,” and “with no warranties implied or stated.” This means that the seller, trustee, and bankruptcy estate are not responsible to the buyer for the property in any way, except to provide a deed, bill of sale, or assignment. Because of this, trustees rarely order title searches on real property, and often go off of the “Schedules” (or list of debts and assets provided by debtor) to determine and disclose any liens against the property. The disclaimers can often deter more apprehensive buyers while creating the opportunities for epic deals.
Most bankruptcy auctions in the United States are in person auctions. However, it is possible to follow auctions on the Internet. Many in person auctions even have Internet or phone bidding. Some bidders find it helpful to watch online auctions and attend in person auctions in the beginning, to get comfortable with their surroundings before rushing into a bid.
When bidding, have a plan. It’s easy to get carried away and outbid not only your competitors but also your budget. Know which assets interest you, what you are willing to pay, as well as the value of the asset before you bid. Make sure that you have the funds in hand, should you win the auction. An auctioneer acts as a middleman between the trustee and the buyer, so when the auction ends, stay in contact with your auctioneer. Occasionally, property transfer in bankruptcy can be a bit tricky, and open communication and cooperation with your auctioneer helps moves the process along.
Remember that your auctioneer knows what sales are coming up, even before the noticing period. Seasoned investors in bankruptcy assets know to register for auctioneer mailing lists, and check in from time to time to scoop their competition and get a head start on an upcoming auction.