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Chapter 11 Bankruptcy Real Estate Broker: DIP, Stalking Horse, and Plan Sales

Chapter 11 — the reorganization chapter — involves a fundamentally different dynamic from Chapter 7 liquidation. In most Chapter 11 cases there is no trustee. The debtor continues to operate as a “Debtor in Possession” (DIP), with the powers of a trustee but also with the obligation to operate in the ordinary course. Real estate sales almost always fall outside the ordinary course — requiring court approval and, in most cases, a §363 process. OLH has experience with Chapter 11 real estate in every property category across all 50 states.

The Debtor in Possession as Seller

In Chapter 11, the DIP has authority to sell property of the estate subject to court oversight. Ordinary course vs. outside ordinary course: collecting rent from existing tenants is ordinary course — no court approval needed. Selling a real property asset is almost always outside ordinary course, requiring approval under §363(b). DIP broker appointment: the DIP employs a broker under §327(a) with the same disinterestedness requirements as a Chapter 7 trustee appointment. In some cases the DIP’s pre-petition broker can be retained under §327(e) for a specific purpose if not otherwise disqualified. OLH can be appointed under either provision. See: §327 Application Guide.

The Stalking Horse Bidder Process

The most common Chapter 11 scenario: a distressed commercial property owner files Chapter 11 to stop foreclosure and sell in an orderly §363 sale rather than losing the property at auction. The stalking horse process: (1) Stalking horse selection: the DIP or trustee’s attorney negotiates with a pre-identified buyer who agrees to purchase at a minimum price. (2) Bid procedures motion: the court establishes formal overbid procedures at a first hearing, typically requiring a minimum overbid increment and proof of financial qualification. (3) Break-up fee: the stalking horse typically receives 2–3% of the purchase price as compensation if outbid at the court-supervised auction. (4) Auction at court hearing: qualified overbidders compete at the §363 hearing. The court approves the highest and best bid. OLH supports the entire stalking horse process: identifying potential stalking horse buyers, coordinating with the attorney on bid procedures, and managing the auction process at the hearing. See: Stalking Horse Bidder Guide.

Plan of Reorganization Sales

Real estate can be sold through the Plan of Reorganization rather than a pre-plan §363 sale. Plan sales are common for: (1) Residential developers in Chapter 11 selling individual lots or homes — each sale closes through the plan rather than requiring a separate §363 motion. (2) Hotel and hospitality assets where maintaining operations during sale is critical. (3) Complex multi-property portfolios where coordinating sales across the portfolio is more efficient than piecemeal §363 motions. OLH coordinates listing, marketing, and closing of Plan-of-Reorganization real estate sales in both residential and commercial contexts.

Immediate: Hub — Appoint a Broker — Out-of-State Property — Broker Checklist — Emergency Appointment
Process: Ch.7 Trustee — §327 Application — §363 Sale — Attorney Guide — Rule 2014 — BPO & Appraisal
By Chapter: Chapter 11 — Stalking Horse — Chapter 13 — Trustee Roster
Situations: Debtor Guide — Co-Owned — Vacant Property — Maximize Proceeds — Buyer Guide — Abandonment — License FAQ
Property Types: Commercial — Multi-Family — Rental Property — Vacant Land — Luxury — Hotel/Hospitality — All 50 States

Frequently Asked Questions

What is the difference between a Section 363 sale and a Plan of Reorganization sale in Chapter 11?

A §363 sale is a pre-plan asset sale requiring a standalone §363 motion, 21-day notice, and court approval before the Plan is confirmed. A Plan sale is authorized at Plan confirmation and implemented through the confirmed Plan. The §363 sale is faster and provides buyer title certainty through §363(m). Plan sales are more appropriate when the sale is integral to the overall reorganization structure.

What is a stalking horse bidder and why does it benefit the estate?

A stalking horse bidder is a pre-selected buyer who agrees to purchase at a minimum price, setting a floor for competitive bidding and giving the estate certainty of a minimum recovery. In exchange, the stalking horse typically receives a break-up fee (2–3% of the purchase price) if a higher overbid is accepted at the court hearing. The stalking horse process ensures the estate receives at least the floor price while remaining open to maximum competitive upside.

Can a Chapter 11 debtor use its pre-petition real estate broker?

Under §327(e), the DIP may retain an attorney who previously represented the debtor for a specified special purpose if in the best interest of the estate and if the attorney holds no interest adverse to the estate. Some courts extend this analysis to brokers. However, any prior representation of the debtor must be fully disclosed in the Rule 2014 affidavit, and the U.S. Trustee may object if the prior relationship appears to compromise disinterestedness.