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By Daniel Gill
A California-based company has created a new program designed to allow Chapter 7 trustees to realize value from underwater properties.
Bankruptcy Management Solutions Inc. (BMS) facilitates short sales with a value carved out for the bankruptcy estate. It does so by partnering with Auction.com and working with loan servicers, including Bank of America, U.S. Bank, and Mr. Cooper (formerly known as Nationstar).
A key to the program is that loan servicers agree in advance on a short sale, Melinda Teter, BMS vice president of client services, told Bloomberg Law.
Teter said they currently close about six sales a month, but are looking to expand those numbers.
Here’s how the fledgling program works: after receiving notice of a bankruptcy filing, a participating loan servicer determines whether it is willing to agree to a short sale, and at what minimum price. It communicates this information to Auction.com, which gives the information to BMS.
BMS researches the property to assess liens and other factors, and contacts the trustee with each bankruptcy case to explain its services and to offer to facilitate a short sale.
A trustee would file a motion to approve the sale and auction procedures, and applications to approve employment of BMS and a property listing agent. BMS provides forms for the motion and applications which the trustee can use or modify.
Assuming court approval of the motion and applications, Auction.com would conduct the sale, and the servicer agrees to carve out proceeds for the estate, and to pay BMS and Auction.com, as well as fees of the court-approved listing agent.
The estate receives 5 percent of the sale price, or $7,500, whichever is greater. The estate gets equity where there was none.
Chapter 7 panel trustee Markian Slobodian of Harrisburg, Pa., has used the program and told Bloomberg Law that it could be a good fit between Chapter 7 trustees and mortgage servicers and lenders burdened with underwater properties in bankruptcy. It provides a concrete benefit to the bankruptcy estate and it helps the loan companies by avoiding the lengthy delays and expenses associated with foreclosing on property in a bankruptcy case, he said.
BMS doesn’t pursue instances where the debtor intends to keep the property, or where the debtor has claimed a homestead exemption. The properties are consistently many months delinquent on mortgage payments and are destined for foreclosure, Teter said.
Teter said BMS looks forward to growing the program, with more participating lenders or loan servicers and more trustees using the service.
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To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
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