Analysis of Recent Real Estate Sector Bankruptcy Rulings

The court began its analysis by noting that a debtor may sell property free and clear of interests pursuant to Section 363(b) of the Bankruptcy Code if any of the five subsections of Section 363(f)(1)-(5) are met. The only subsections at issue were 363(f)(3) and 363(f)(4). Section 363(f)(3) authorizes a sale free and clear of liens "only if such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property." See, 11 U.S.C. Section 363(f)(3). The lender argued that the sale price of the property — $265,000 — was less than the value of its lien — $294,915. The court ruled that the sale proceeds would satisfy the lender's lien because the proposed sale proceeds exceeded the amount of its filed proof of claim, and the lender had failed to provide evidence in support of the amounts it claimed it was owed. The court also found that the sale was authorized under Section 363(f)(4), which states that a sale may proceed free and clear of an interest that is in bona fide dispute. The debtor testified that the lender was owed only $241,976.23, and had filed an objection to the lender's proof of claim, disputing amounts charged for taxes, escrow payments, inspection fees and broker price options. The court found the lender's claim was in bona fide dispute.