Auctioning the United Homes Portfolio: A Legal Case Study

Abstract

The legal case study patterned on ones used in business schools and other professional education suggests itself as appropriate course materials for legal education. Legal case studies fill a gap mentioned by both the MacCrate Report and the Carnegie Foundation criticism of legal education. Especially for educating law students who will practice transactional law, legal case studies offer real life perspectives on the lawyer as advisor and lawyer as problem solver. This legal case study is designed to provide students with an understanding of the decision to use a private auction to sell a large portfolio of houses owned by a national builder. While information about the business circumstances of the seller are provided and are an integral part of the decision making, the principle focus will be the legal issue involved in this decision. Auctions are becoming increasingly popular in the United States as well as around the world for selling all types of distressed and non distressed properties. However, little research exists on the legal aspects of such sales and the comparison with other methods of sale, including traditional sales and sales pursuant to foreclosure. This research study investigates the use of auctions to sell a large portfolio by United Homes, Inc. It consisted of 320 properties distributed around suburban Chicago (Illinois), Scottsdale (suburban Phoenix, Az), and suburban Grand Rapids (Michigan). By the beginning of the study, United Homes had begun to default on two mortgages and other secured and unsecured debts. In anticipation of lenders’ foreclosing, United Homes filed for Federal bankruptcy protection. The bankruptcy court’s subsequent approval of sales of the real estate by private auction is the basis for a study of excellent negotiating and good lawyering on the part of attorneys for the debtor, the mortgagees, the representative of the official unsecured creditors committee and the bankruptcy judge. The story of how the decision to sell the real estate using an auction was reached and the bankruptcy court’s approval process provides a valuable legal case study to add to the literature in the field.

Keywords: legal case study, bankruptcy, real estate