Model Bankruptcy Order to Sell Free and Clear of Liens Click here to view a copy of the Model Bankruptcy Order

Model Bankruptcy Order to Sell Free and Clear of Liens

Click here to view a copy of the Model Bankruptcy Order

The following is a reprint of the California Land Title Association's Bulletin 01/02-29:

The California Land Title Association had the opportunity to work with the Insolvency Law Committee of the California State Bar in developing a Model Bankruptcy Order to sell free and clear of liens. The Model Order does address many title insurance underwriting concerns and should serve to facilitate the issuance of title insurance.

It should be noted however that recent federal cases have created an issue as to whether federal bankruptcy courts have jurisdiction to affect state liens or other interests due to the states’ sovereign immunity pursuant to the U.S. Constitution. Therefore, absent consent to suit by the state or an appropriate release, termination or conveyance of its interest (whichever is applicable), a bankruptcy court order may not be relied upon to insure title without exception for an existing state lien upon, or interest in, real property.

The Model Order is well drafted and will generally be acceptable to title insurance companies; however, specific circumstances in a particular bankruptcy may create special issues. An example would be reliance on a waiver of the automatic 10-day stay period. For this reason, prior to submitting the order to the bankruptcy court, the form and content of the proposed order, as well as the motion requesting the order and the manner and timing of notice to creditors and other parties who have requested notice, should be reviewed by the title company underwriter involved in the particular transaction to confirm that the order and the procedure followed to obtain it, satisfies the title company’s underwriting requirements.

CLTA News Express - September 24, 2001