Question 1

How does a stalking horse bid work in a §363 sale?

Accepted Answer

The stalking horse buyer negotiates directly with the debtor and signs an asset purchase agreement before bidding procedures are filed with the court. The court approves the stalking horse as the baseline bid. If no qualified competing bids are submitted, the stalking horse buyer wins at their negotiated price. If competing bids are submitted, an auction is held, and the stalking horse typically receives a break-up fee (1-3% of purchase price) if outbid. Being the stalking horse gives you price certainty, due diligence time, and fee protection.

Question 2

What does "free and clear" mean in a §363 sale?

Accepted Answer

Under Bankruptcy Code §363(f), a debtor can sell property free and clear of most liens, claims, and interests if certain conditions are met, including lender consent or court determination that the price exceeds the lien value. Buyers receive title that is legally stripped of junior mortgages, mechanic's liens, and judgment liens. This is why title insurance underwriters treat §363 sales as among the cleanest title scenarios, the court order itself is the cure mechanism.

Question 3

How long does a commercial real estate §363 sale take?

Accepted Answer

From the date bidding procedures are approved, most commercial real estate §363 sales close within 60-120 days. The process has three stages: bidding procedure approval (typically 2-3 weeks after filing the motion), the auction or confirmation of the stalking horse (21-30 days after procedures are approved), and the sale approval hearing (1-2 weeks after the auction). Closing usually follows within 30-45 days of sale approval. Courts in New York, California, and Texas have streamlined these timelines.

Question 4

Are there risks specific to buying commercial real estate in bankruptcy?

Accepted Answer

The primary risks are: (1) overbidding in competitive auctions without adequate due diligence, the auction format creates pressure; (2) environmental liabilities that may not be discharged in the §363 sale; (3) existing tenant leases that the debtor may assume and assign with court approval, requiring buyer acceptance; and (4) financing contingency risk, lenders are sometimes uncomfortable with bankruptcy timeline uncertainty. Most sophisticated buyers conduct abbreviated due diligence before auction day and underwrite conservatively.

Question 5

Where do I find active Chapter 11 commercial real estate §363 sales?

Accepted Answer

PACER (the federal court electronic filing system) is the primary source, search by debtor name or keyword in the relevant district. Debtor counsel typically files a "notice of sale" that appears in the case docket. Commercial real estate brokers specializing in distress also track these, as do restructuring-focused law firms. OffMarketX surfaces these opportunities and delivers pre-auction deal flow to our buyer network before public marketing reaches the broader market.