Glossary

Section 363 Sale

Also known as: 363 Sale, Free and Clear Sale

A sale of a debtor's assets during a bankruptcy case, authorized by the court under Bankruptcy Code Section 363, that can be conducted outside — and generally faster than — a plan of reorganization, and that conveys the assets free and clear of most existing liens, claims, and interests, which instead attach to the sale proceeds.

Section 363 sales are widely used in CRE bankruptcies to sell a distressed property to a new buyer mid-case rather than waiting for plan confirmation, typically through a competitive process featuring a stalking-horse bidder who sets a price floor and receives bid protections — a breakup fee and expense reimbursement — in exchange for that role, followed by a court-supervised auction among qualified bidders. The 'free and clear' feature under Section 363(f) is the sale's central commercial value: a buyer can acquire the asset without inheriting existing mortgage liens, mechanic's liens, or certain other claims, subject to specified statutory conditions being met (such as lienholder consent, a bona fide dispute over the lien, or a price exceeding the aggregate value of the liens), which is why distressed buyers often prefer acquiring a CRE asset through a 363 sale over an out-of-court purchase, where clearing title to a title insurer's satisfaction can be slower and less certain. A secured lender can typically credit bid at a 363 sale of its own collateral, absent a court order to the contrary.