As the filing of Chapter 11 cases continues to be rare, state court alternatives for liquidation of assets continue to grow in popularity. State court alternatives typically provide a more expeditious and less expensive forum for secured lenders to direct the liquidation of their collateral—for example, state court receivership sales avoid the United States Trustee fees and unsecured creditors’ committees that add layers of expense to bankruptcy asset sales. In the past, secured creditors frequently sought the bankruptcy court as a forum for debtors to sell their assets, in large part because Section 363 of the Bankruptcy Code offered a powerful incentive: the sale of assets free and clear of liens and encumbrances. The sale of assets free and clear is critical for the efficient liquidation of collateral, because it attracts buyers who know with certainty that they are buying unencumbered assets. Until fairly recently, secured creditors in Ohio cases have been concerned whether state courts can provide similar assurances, because there is no statutory law in Ohio expressly authorizing the sale of assets free and clear.

            Nevertheless, the current trend is that a receiver can sell assets free and clear of liens and encumbrances. In recent cases, the Ohio state courts have been upholding a receiver’s right to sell assets free and clear. At least one case, decided in 2010, even authorized such a sale in the face of the objection of a junior lienholder. We are aware of only one cited case in which the receiver was not authorized to sell the assets free and clear, but the receiver in that case never sent the holder of a judicial lien notice of the sale. Accordingly, Ohio courts are not providing an impediment to sales of assets free and clear outside the realm of the bankruptcy courts.

            Equally important, however, is whether a title company will issue a title policy, even with the comfort of a sale order signed by an Ohio state court judge. There are title companies in Ohio that are still not convinced that title can be washed clean outside of bankruptcy unless there is a foreclosure. Certain title companies will wait to write an owner’s policy until the time for appealing the sale order has lapsed. Other title companies want assurance that all the lienholders agree to the sale. Obtaining the agreement from the title companies is critical to a successful free and clear sale, because no buyer will agree to buy assets free and clear in a receivership if the buyer cannot obtain an owner’s policy insuring title.

            Accordingly, while the trend in Ohio strongly supports receivership sales free and clear of liens, the willingness of title companies in Ohio to write an owner’s title policy for the buyer is less clear. A buyer considering buying assets from an Ohio receivership should make sure to line up a title company willing to write an owner’s title policy before the buyer seeks to buy the assets.