Board Topic: Buying a business - Complicated
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Buying a business - Complicated

Posted by: Danno Oct 3 2003, 12:39 PM
Hi,

This is a great site! A friend and I recently came across a Deli with a three bedroom Apartment upstairs. The Deli was closed, but looked like everything was intact. We inquired about the Deli from the people living upstairs and they told us that the owner closed it two months ago and may be heading into Bancruptcy. We contacted the owner and he showed us that he originally bought the Building and Business for 150,000 and put another 30,000 into it. The owner and his wife are getting a divorce besides going bancrupt, but haven't signed anything yet (Their just talking to a Lawyer regarding the bancruptcy) He told us that he did not include the business in the personal bancruptcy and is current on all his payment to the bank thanks to his Business Line of credit which is due to run out in two months and he said he'll just let the bank foreclose on it. He currently owes 110,000 to the bank on the business loan and another 30,000 for the line of credit.

My question is can the owner sell us the place for less than the 110,000 he owes to the bank since he is heading into bancruptcy anyways (In case the bank comes after him for the money)? or will the bank come after us for the rest?

My second question is, if we end up buying it for 110,000 can the bank come after us for the additional 30,000 line of credit that he took out? or is that on him?

This business has a lot of potential and we would like to turn into a pizzeria. The owner just never ran in right and was never there. We would like to get the best deal possible (but legally) since he basically lost his customer base by closing two months ago

Thank You for your help...

Danno

Posted by: loanuniverse Oct 3 2003, 03:52 PM
Danno:

My question is can the owner sell us the place for less than the 110,000 he owes to the bank since he is heading into bancruptcy anyways (In case the bank comes after him for the money)? or will the bank come after us for the rest?

Just exactly what is the owner selling you? You will not get title to the property since the bank will not release its lien. The bank would also move to stop the sale of the business. Any proceeds from the sale have to go to the bank first.

My second question is, if we end up buying it for 110,000 can the bank come after us for the additional 30,000 line of credit that he took out? or is that on him?

You are not buying anything unless the bank agrees to it especially if it involves real property like this seems to do. Even if it didnít involve real estateÖ. letís suppose for argument sake that all that you were buying was the oven, the restaurant equipment, the silverware, the tables, etc. The bank still has a lien on that equipment If you give him even a dollar for it the bank can get that transaction voided and get the equipment from you.

This business has a lot of potential and we would like to turn into a pizzeria. The owner just never ran in right and was never there. We would like to get the best deal possible (but legally) since he basically lost his customer base by closing two months ago.

I suspect that he is past due on his loan and that the bank is aware. You can probably try to purchase it for less as long as the bank agrees. It all depends on how much the bank thinks is going to be able to collect and if your offer makes more sense. Wathever you do, it must involve the creditor at some point.

Hope this helps.

Posted by: Danno Oct 3 2003, 04:19 PM
loanuniverse,

Thank You for replying...it's very helpful...just have a few more questions...

1. He is not past due on his loan account so the bank has no idea.

2. I don't think you really answered my second question or maybe you did and I need more clarification.
He owes 110,000 on the loan so say we give him 110,000 (provided the bank agrees) can the bank also want money from us from his business line of credit he owes (30,000) or is that on the owner.

3. What do you think the chances are that the bank would let it go for less since he shut down the place 2 months ago and the customer base is gone. I'm trying to get this done in the quickest way possible, I just don't want his bank to hold things up if they have to approve the sale.

4. Is it wise for him to involve the bank at this point (since they don't know he is gonna foreclose)?

Thank You for all you help...

Dean

Posted by: loanuniverse Oct 3 2003, 06:54 PM
He is not past due on his loan account so the bank has no idea. This is a good thing.

He owes 110,000 on the loan so say we give him 110,000 (provided the bank agrees) can the bank also want money from us from his business line of credit he owes (30,000) or is that on the owner. Looking at this from just a property sale, then you would not be liable for the business loan.

What do you think the chances are that the bank would let it go for less since he shut down the place 2 months ago and the customer base is gone. I'm trying to get this done in the quickest way possible, I just don't want his bank to hold things up if they have to approve the sale. You got to put yourself in the place of the lender. On the one hand, you got a $110,000 loan secured by a property that was supposedly purchased for $150,000. On the other hand, you got a $30,000 line of credit secured by a lien on business assets, which they will be lucky to get $0.05 on the dollar. Do you think the lender will be willing to let go the one piece of collateral that has a chance to make him whole?

Also do not be surprised if the lender has a cross-collateral and cross-default agreement in place between the two facilities. I am not a 100% sure if that would allow them to stop the sale or not release the lien.

Is it wise for him to involve the bank at this point (since they don't know he is gonna foreclose)? Hmmm, I am a big fan of being up front. The problem is that while he is still current, any loan officer worth his salary would put two and two together when he realizes that the building where the business is located is being sold. After all, where is the business going to operate?

Important note: Doing this transaction while keeping the lender in the dark about the sellerís intention to file bankruptcy soon thereafter could possibly leave you liable. Imagine that I am the lender, and I am convinced to release my lien even though it was securing both the term loan and the business loan and then I am served with bankruptcy papers soon after. I would be very upset and probably try to get the property back. Please read my disclaimer. I am not an attorney. Consult a bankruptcy attorney before pulling the trigger.


Posted by: Danno Oct 3 2003, 10:32 PM
Thank you...You've helped a great deal!

One thing though on your important note...His lender would have know that I knew the owner was going bankcrupt...not every owner would tell the potential buyer he is going bankcrupt. I don't think the lender would a foot to stand on, but we plan on consulting a bankrupt attorney. The last thing we want are headaches besides the ones were gonna have....

Thanks again...I reallly appreciate it

Again...Great Site, I plan on spreading the word...

Danno
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