Bankruptcy Court was often seen as a venue for bargain hunters
to obtain great deals. A recent decision by the Bankruptcy
Appellate Panel, In re PW, LLC (Clear Channel v.
Knupfer), 391 B.R. 25 (9th Cir. BAP 2008), appears to change
that -- at least partially. In Clear Channel, the panel
held that, contrary to popular belief, the Bankruptcy Code will not
necessarily allow for the sale of real estate free and clear of
junior encumbrances at bankruptcy court auctions.
The case involved an all-too-familiar scenario in today's
troubled real estate market. A developer filed a Chapter 11
bankruptcy after appointment of a receiver in a last-ditch effort
to avoid foreclosure. The project was encumbered by both a first
deed of trust in favor of the lender and a junior lien. After the
lender successfully moved for appointment of a trustee, the trustee
auctioned the real property free and clear of all liens, at which
auction the lender was allowed to credit bid. The junior
