Underwater Lender Could Not Be Compelled To Accept Money Satisfaction Of Its Property Interests; Sale Free And Clear Under 363(f) Denied

In re Ferris Props., Inc., No. 14-10491 (MFW), 2015 WL 4600248 (Bankr. D. Del. July 30, 2015)

On July 30, 2015, the Delaware Bankruptcy Court denied a debtors’ request to sell properties free and clear of liens and encumbrances pursuant to section 363(f) of the Bankruptcy Code, holding that the mortgagee, whose claim would not be paid in full from the sale proceeds, could not be compelled to accept a money satisfaction of its interests in the properties and did not consent to the sale.  A debtor may sell property free and clear of any interest in such property only if, among other things, the entity holding the interest consents or the “entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.”  11 U.S.C. § 363(f)(2) & (5). In Ferris, the mortgagee did not consent to the sale.  Despite the proposed buyer’s argument that the mortgagee could still be compelled under section 1129(b)(2)(A) to accept a money satisfaction of its liens, the Court disagreed.  Section 1129(b)(2)(A) governs the “cram down” of secured claims in the plan confirmation context.  Judge Walrath questioned whether such provision provides for a qualifying “legal proceeding” under section 363(f)(5), noting that the courts are in disagreement over this issue.  Moreover, and more importantly, neither the debtors nor the proposed purchaser demonstrated that a section 1129(b)(2)(A) cram down could even be effectuated with respect to the mortgagee’s secured claim.  There was no showing that the mortgagee would retain its liens, receive deferred cash payments totaling at least the allowed amount of its claim, or would receive the indubitable equivalent of its claim – the three possible avenues of cram down under section 1129(b)(2)(A).  Accordingly, both the argument and the sale failed.