Bankruptcy Auctions Go Online to Boost Cash for Creditors
Joel L. Tabas, a bankruptcy trustee in Miami, bypassed traditional liquidators when faced with the challenge of selling a debtor’s 2006 Hummer H3 this year. Instead, he put it on EBay.
Trustees across the U.S. are turning to Internet marketplaces such as EBay Inc. (EBAY), the world’s largest, to fetch higher prices for assets, boosting recoveries for creditors. Online offerings have included a $1.5 million California house with a view of Mount Shasta, 215 pairs of sneakers from football star Warren Sapp’s Air Jordan collection and a set of Arizona cemetery plots.
Online sales are “the single most revolutionary tool the auction business has ever seen,” said Mark Weitz, 52, a unit president of Great American Group Inc. (GAMR), a liquidator with offices in Los Angeles, Chicago, Boston and London.
As much as $2 billion in assets moves through bankruptcy courts in Chapter 7 cases and at least $10 billion in assets from Chapter 11 363 sale cases, of which a portion are now sold over the Internet, said Vahak Papasian, a Los Angeles-area bankruptcy lawyer. Online bankruptcy sales, which began about 2005, now account for about 20 percent of the business at Meares Auction Group in Pelzer, South Carolina, said company President David Meares.
“It’s all over the country,” Meares said in a telephone interview. His company, which started in 1972, generates total sales of $300,000 to $1 million a year selling items such as gold to overseas buyers and guns in the U.S., he said.
The increase in online bankruptcy auctions has attracted competitors to San Jose, California-based EBay, which has more than $13 billion in annual sales. At Inforuptcy.com, the Burbank, California-based website Papasian co-founded with Michael Mikikian, a former Jefferies & Co. vice president, users can download court filings and buy and sell bankruptcy assets and claims.
Hilco Trading LLC, a veteran bankruptcy liquidator based in Northbrook, Illinois, recently started its own site, hilcoipauctions.com. The sale of the intellectual property of bankrupt Advanta Corp., including trademarks and copyrights, began in late August on Hilco’s platform.
Proxibid Inc., the world’s largest provider of live auction webcasting services, handled more than 200 bankruptcy auctions last year, almost twice as many as three years earlier, President Ryan Downs said. The value of the goods climbed to $50 million, or about 5 percent of the total processed by the Omaha, Nebraska-based company.
Bankruptcy auctions “do well on our platform,” Downs said in a telephone interview. “This competitive bidding aspect does increase prices.”
“We’ve been doing vehicle sales for about a year online almost exclusively,” Tabas said in a telephone interview. Live auctions often draw “car dealers who are going to flip them,” he said.
“Most times, with online auctions you are selling to the end-user, so you get closer to a private-party sale value,” Tabas said.
Improving information technology will help “promote effectiveness and efficiency” in the courts, the U.S. Trustee’s office, the Justice Department arm that oversees bankruptcy cases, said in its strategic plan for the next four years. The push stems partly from a “dramatic increase” in case filings from 2008 to 2010, the office said.
The 1.6 million of total bankruptcies in 2010, in the wake of the global financial crisis, were the most since the record of 2.1 million in 2005, when Americans sought to beat new laws making it harder to cancel debt, according to data compiled from court records by Epiq Systems Inc. (EPIQ) Bankruptcies through August were on track to total 1.25 million this year, down 9 percent from last year’s 1.38 million, the data showed.
While Advanta, a Spring House, Pennsylvania-based financial-services company, initially filed to reorganize under Chapter 11 of the Bankruptcy Code, most online auctions involve debtors who sought to liquidate using the code’s Chapter 7.
In Chapter 7, a U.S. Trustee, or sometimes a judge, appoints an impartial trustee to administer the case and liquidate assets such as automobiles, which many filers aren’t allowed to keep.
A trustee’s main duty is to maximize the value of the bankruptcy estate for the benefit of creditors by recovering and selling property. The trustee gets paid a portion of the filing fee and an incentive-based commission from asset sales.
About 1,000 designated Chapter 7 trustees administer more than 1 million cases a year, most of them personal bankruptcies with no assets, according to the National Association of Bankruptcy Trustees’ website.
“The Internet, including EBay Motors, has developed as an excellent source to liquidate assets of bankruptcy estates,” Tabas said in court papers. “The estate incurs minimal costs and achieves national exposure to potential purchasers.”
EBay doesn’t keep statistics on how many of its sales involve bankruptcies, Johnna Hoff, a spokeswoman, said in a phone interview. Tabas listed the Hummer, a sport-utility vehicle built by General Motors Co., on EBay with a reserve price of $8,500. It sold in July for $9,600 after 536 visits and 11 bids, according to court papers.
Raymond Obuchowski, a Chapter 7 trustee in Vermont, initially found no takers for a bankrupt’s 18th-century violin, made by Laurentius Storioni. Marketing the violin on inforuptcy.com garnered a stalking horse bid of more than $14,000. The instrument sold for $21,000 at an auction held by Obuchowski, according to Mikikian.
Going online doesn’t always work out. Sapp, a former Pro Bowl defensive lineman for the National Football League’s Oakland Raiders and Tampa Bay Buccaneers, filed for bankruptcy in March. His sneakers, offered on EBay by trustee Kenneth Welt in Fort Lauderdale, Florida, were withdrawn after bids failed to reach the reserve price, the lowest that would be accepted.
When a reserve price isn’t met, trustees may put the item up for auction again or go back to the highest bidder and try to work out a deal, Tabas said.
“You have to kind of consider the circumstances and do the best you can,” he said. “It’s all a judgment call.”
The California home and the six Arizona cemetery plots are still available on bankruptcysales.com, a site set up by the National Association of Bankruptcy Trustees.
Darren Julien, head of Julien’s Auctions in Beverly Hills, California, said there are other pitfalls to using online platforms like EBay. Julien, who bills his company as “Auctioneer to the Stars,” has overseen auctions of memorabilia once owned by celebrities such as Michael Jackson, Johnny Cash, Bette Midler and Cher.
“On EBay, you have to worry about authenticity,” said Julien, whose company does research to establish an item’s provenance. Under EBay’s “Buyer Protection” plan, a buyer must contact the seller and try to work out any dispute. If they can’t, EBay takes “a more active role in ensuring transaction problems are resolved,” according to its website.
On Nov. 30, Julien’s will hold an auction for boxing champion Evander Holyfield’s memorabilia in Beverly Hills. Holyfield is trying to pay down debt after his 109-room home in Fairburn, Georgia, was sold in March for $7.5 million in a foreclosure auction, according to the New York Daily News.
Bidders can take part in person, online or over the telephone. Julien’s Beverly Hills gallery will hold a public exhibition in the days leading up to the auction, where Holyfield’s collectibles will be on display: gloves worn in the June 1997 “bite fight” with Mike Tyson, championship rings, a 1962 Chevrolet Corvette, Holyfield’s 1984 Olympic bronze medal and Rolex, Cartier and Patek Phillipe watches.
Full-color catalogs signed by Holyfield will go for $250 each, according to Julien’s website, which touts the auction as “The Main Event.”
“You can’t generate this kind of excitement online,” Julien said.