Real Estate Tip: Price Protection for the Stalking Horse Bidder


Real estate buyers may hesitate when a seller is in bankruptcy; extra care is often required. One of many possible bankruptcy-related transaction structures arise when a buyer strikes a deal directly with the bankrupt owner of the property or with the trustee in bankruptcy. The purchase and sale agreement requires the same due diligence and buyer protection provisions as any other, and will also deal with issues unique to the bankruptcy setting.

Here’s where price protection comes in: one issue of particular interest to buyers is that in bankruptcy real estate sales other potential purchasers will be bidding after buyers and sellers have negotiated a price and other terms. The bankruptcy trustee or judge will want bidders to offer the highest possible price, but the buyer, known in this context as the “stalking horse buyer” or “stalking horse bidder” will want to discourage bids higher than the negotiated price. These potentially higher bids are referred to as “overbids.” Many bankruptcy courts allow stalking horse bidders to be compensated if there is an overbid resulting in a sale to the higher bidder. The compensation, called a “break-up” fee, is typically a cash payment equal to a small percentage of the purchase price (3% or less). The bankruptcy court may also be willing to order other protections for the stalking horse bidder including requiring other bidders to match the stalking horse bid’s non-price terms, or allowing the stalking horse bidder to match the higher bid.

If you’re about to become a stalking horse bidder, be certain to engage real estate and bankruptcy savvy counsel to help identify the full range of price protections.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bernstein Shur | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.