Can any commercial real estate be sold through a 363 process?

Only real estate owned by an entity that has filed Chapter 11 (or Chapter 7 with a trustee). The filing entity can be the property-owning LLC itself, a holding company that owns the property-owning LLC, or an operating company that owns real estate. If the property owner is not in bankruptcy, a 363 sale is not available, but other court-supervised processes like receivership may be.

What is a credit bid in a 363 sale?

A credit bid is a bid submitted by a secured creditor (typically the first mortgage lender) in which the bid amount is "credited" against the outstanding loan balance rather than paid in cash. Under § 363(k) of the Bankruptcy Code, secured creditors generally have the right to credit bid up to the full amount of their allowed claim. This allows the lender to set a floor at its loan balance, ensuring the property either sells above that amount or the lender takes the asset.

How is a 363 sale different from a Chapter 7 liquidation?

Chapter 11 with a 363 sale is a reorganization process where the debtor-in-possession (or a debtor's representative) manages the sale as part of a broader restructuring plan. Chapter 7 involves a court-appointed trustee who liquidates all assets for the benefit of creditors. 363 sales can occur in either chapter, but the commercial real estate context most commonly involves Chapter 11 where the debtor or secured lender controls the process.

Do I need bankruptcy counsel to buy real estate in a 363 sale?

Yes. This is not a recommendation that can be soft-pedaled. The 363 process involves specific legal requirements, document review, and court interaction that general commercial real estate attorneys are not equipped to handle without specific bankruptcy transaction experience. Retain counsel who has specifically represented buyers or debtors in prior 363 real estate transactions.

What is a topping fee and how does it differ from a break-up fee?

In commercial real estate, these terms are often used interchangeably. The technical distinction: a break-up fee is paid when a competing bid is selected at auction and the stalking horse is outbid. A termination fee or topping fee refers more broadly to compensation paid when the stalking horse agreement is terminated for any reason, including the debtor choosing not to close despite the auction winner being the stalking horse. In practice, the documents will use one or the other term; read the specific agreement to understand what triggers the payment.

What Is a Section 363 Sale