"He could have taken Chapter 13 or just closed his doors, but he said, "No, we are going to try Chapter 11 and reorganize. That is pretty exciting because he thinks he is down for the fight and strong enough to get through it. That’s an important message," Martin says.
Franchisees that close their doors can lose their franchise affiliation if their agreement with the franchise company contains a "go dark" provision, according to John Young, a bankruptcy attorney with Markus Williams Young and Zimmermann in Denver, Colo.
"If you shut the doors for any amount of time, you have gone dark and that automatically terminates the agreement. Then the argument in bankruptcy becomes: Can you somehow resurrect the franchise agreement? It’s extremely difficult," he warns.
Bankruptcies set to rise this year
The rise in bankruptcies of real estate companies is part of a larger trend in U.S. bankruptcies overall. Total bankruptcy filings increased 31 percent from nearly 851,000 in 2007 to more than 1.1 million in 2008, according to the American Bankruptcy Institute (ABI), a nonprofit organization in Alexandria, Va., that is devoted to bankruptcy-related research and education.
Bankruptcies of businesses recorded an even sharper increase of 54 percent from 28,322 in 2007 to 43,546 in 2008. The 2008 figure was the highest number of filings since 1998. The organization doesn’t track bankruptcies on an industry-by-industry basis.
ABI analysts expect total bankruptcies this year to exceed 1.4 million, and it’s a reasonable assumption that some real estate companies will be on the list.
N.A.R. membership drops 12%
Other figures also hint at the extent of industry consolidation.
Membership in the National Association of Realtors declined to 1.19 million in 2008, a loss of about 12 percent compared with 1.33 million in 2007. The U.S. Realtor population peaked at 1.35 million in 2006, an increase of 76 percent compared with 766,610 in 2000.
The trend line has been similar in California, which has been hard hit by home-price declines and foreclosures. The number of real estate licensees climbed every year from 309,126 in 2000 to nearly 548,595 in 2007, and dipped down to 532,531 by December 2008.
The Association of Real Estate License Law Officials (ARELLO) also tracks licensee data. There were 3.1 million real estate licensees in the U.S. as of Jan. 1, 2009, according to the organization’s Web site. ARELLO declined to release any comparable data from prior years for this story. …CONTINUED