Trustee Blog

Motion to Sell Real Property: Part 2

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On Dec 20, 2013 was first post on Chapter 7 Trustee Charles Daff  selling real  property  in a bankruptcy case.

Judge Houle ultimately granted the trsutee’s Motion to Sell  and went on to talk about the factors involved in such a sale:

“a) Sale Made in Good Faith

The proposed sale has been brought in good faith and has been negotiated on an “arms- length” basis. The court, in Wilde Horse Enterprises, set forth the factors in considering whether a transaction is in good faith. The court stated:

‘Good faith’ encompasses fair value, and further speaks to the integrity of the transaction. Typical ‘bad faith’ or misconduct, would include collusion between the seller and buyer, or any attempt to take unfair advantage of other potential purchasers. . . . And, with respect to making such determinations, the court and creditors must be provided with sufficient information to allow them to take a position on the proposed sale.

Id. at 842 (citations omitted).

Here, the Trustee has demonstrated that the sale has been negotiated at arms- length, is subject to overbidding, and has been properly noticed on interested parties. For these reasons, the Court finds that the proposed sale has been made in good faith.

b) Sale Free and Clear of non-DebtorInterests

A trustee may sell estate property “free and clear” of third party interests in the property, such as co-ownership interest, liens, claims and encumbrances. See 11 U.S.C. § 363(f). A sale free and clear of third party interests pursuant to section 363 is authorized only if one of the following conditions is met: (1) sale authorized by applicable nonbankruptcy law; (2) third party whose interest will be affected consents; (3) the affected interest is a lien and the sale price is greater than total value of all liens on the property; (4) the affected interest is a bona fide dispute; or (5) the third party whose interest will be affected could be compelled to accept a money satisfaction of the interest. 11 U.S.C. § 363(f)(1)-(5).

Here, Trustee asserts that the sale may be authorized because under § 363(f) (3), the sale proceeds of the Property will be greater than the total value of all liens on the Property. In particular, the Trustee has determined that sale price exceeds the existing lien of Central Mortgage Company and property tax liens encumbering the Property. Thus, Trustee has satisfied § 363(f)(3).

c) Bidding Procedures

Generally, bidding procedures must be untainted by self-dealing, encourage bidding and be fair/reasonable/serve the best interests of the estate. See In re Crown Corp., 679 F.2d 774 (9th Cir. 1982).

Here, the Trustee has arranged for sale of the Property with overbidding at the hearing. Trustee employed a broker, Sandi Clark, to sell the Property (the “Broker”). The broker, in turn, marketed the Property on the MLS. The procedure appears to be

untainted by self-dealing (i.e. sale proposed in good faith and at arms length), encourages bidding, and is fair, reasonable and serves the best interests of the estate. Thus, the auction in Court will likely provide for an orderly sale.

d) Compensation of Real Estate Brokers

Here, the Trustee seeks authorization to pay from escrow, the broker commissions for buyer and seller’s brokers, which together constitute 6% of the gross sale price and total $18,600. The Court finds that the amounts requested are reasonable and are approved.

e) Good Faith Purchaser

Trustee, having failed to provide a declaration of the Buyer establishing good faith under § 363(m), the Court shall reserve making a finding of good faith until the hearing on the Motion.

[Judge Houle gives a nice summation of assuming leases in a bankruptcy case]

f) Rejection of Leases
Trustee requests a finding that any existing lease of the Property has been

rejected; and that the current tenants must vacate the Property.

In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60–day period, fixes, then such contract or lease is deemed rejected. 11 U.S.C. § 365(d)(1).

Here, the trustee did not move to assume the lease with the current tenants within 60 days of the order for relief and the lease was thus deemed rejected under 11 USC § 365(d)(1). However, as to an order requiring the tenants to vacate the Property, the Court finds that the Trustee is authorized to pursue eviction of the tenants to the extent such eviction is authorized under state law.”


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