THE INS AND OUTS OF RECEIVERSHIPS
Receiverships offer promising avenues for commercial real estate professionals to assist lenders with distressed assets .
Though never the ideal spot for any lender or servicer , commercial loan default is a reality in the commercial real estate market of 2022 . Among the options available to those looking to protect distressed assets , seeking to have a receiver appointed is a remedy often pursued by creditors because it can minimize losses , maintain property value , and limit liability .
A receivership involves an agent who is appointed by a state or federal court to preserve , maintain , and sometimes sell the assets over which he / she has been appointed . Receivers do not work for lenders ; they are neutral — although some states provide for more direct interaction and influence over receivers than others .
But receiverships do not only occur when a borrower defaults on a loan obligation . In the case of California , for instance , a Los Angeles court receiver can be appointed to a case for a multitude of reasons in addition to handling rents , issues , and profits associated with real estate , such as fraudulent transfer actions , windup of a dissolved corporation , breach of fiduciary duty , government enforcement actions , divorce , and the enforcement of judgments .
Once a receiver is appointed in a case , he or she will take possession of the specified assets and either take the steps necessary to preserve , liquidate , or hold the asset pending further court order . The duties of a court-appointed receiver are expressly set out in the court ’ s order , but they can be varied , including tasks such as forensic accounting , completing construction of a property , and selling assets subject to approval by the court .
OPPORTUNITIES FOR CRE PROFESSIONALS Technically , anyone is qualified to be a receiver . But in practice , courts typically name an individual who is experienced and knowledgeable in the basics of receivership administration , while being familiar with the local rules of the appointing court . For commercial real estate-related receiverships , a potential receiver should be experienced in asset / property management , brokerage , legal issues , and development .
Considering the complexity of many commercial real estate assets , receiverships are a preferred method of handling default and distressed assets . This growing popularity can mean opportunities for CRE professionals in a few different areas .
BOVs . Receivers regularly look to qualified parties for broker opinions of value ( BOVs ), rather than the more expensive option of appraisal . BOVs can be used when deciding to select a listing broker and to sell an asset during the liquidation phase of the case . During this time , a receiver may also have a need for in-depth market reports to establish market lease
Receiverships are a preferred method of handling default and distressed assets . This growing popularity can mean opportunities for CRE professionals in a few different areas .
rates , tenant improvement allowances , escalations , and other concessions . In some respects , a receiver may be simultaneously acting as an owner , property manager , developer , seller , and consultant . Because of these demands , knowledgeable , trustworthy CRE professionals can be powerful partners to receivers .
UNDERSTANDING THE PROCESS To be in position to assist a receiver , CRE professionals must have a working understanding of receiverships and the ability to understand the life cycle of a receiver sale , including the appeal period and duties to creditors .
While every case has its own unique characteristics , the basic chronology of appointing a receiver remains relatively steady . 1 . Underlying Litigation Filed . Receiverships will always be tied to some type of dispute , such as a breach of contract or a foreclosure action . An action must be filed before proceeding to seek the appointment of a receiver .
2 . Dispute Requires Receiver . Not every dispute requires a receiver . This phase is where a party may request the appointment of one , and the court will decide if a receiver is appropriate .
3 . One Party Seeks and Presents a Qualified Proposed Receiver . If the plaintiff or defendant decides they would like to seek the appointment of a receiver , they should ideally seek the most qualified candidate for the role . A receiver can be qualified in many ways , including their background , experience , and location .
4 . Receiver Executes Declaration in Support of Appointment Receiver . Once deciding on a qualified receiver , the party will begin preparing the necessary papers to begin the appointing process .
5 . Party Nominates Receiver . The party requesting the appointment of a receiver files a motion with the court , because a receiver is an agent of the court . During this step , the nominating party states the legal authority on which the appointment of the receiver is based . The motion to appoint a receiver may be filed on an emergency basis , by noticed motion ( when the party seeking the appointment obtains a hearing date on a nonemergency basis ), or by stipulation ( if all parties agree to the appointment ).
6 . Court Hearing . During this phase , the court will rule on whether to appoint the receiver . The court will typically do one of three things : appoint the receiver , determine an appointment of a receiver is not appropriate at that time , or deny the appointment .
7 . Court Order . The order appointing a receiver is signed by the judge in the case . The order determines the initial scope of the receiver ’ s duties and authority . The nominating party then alerts the receiver of the appointment and provides a copy of the signed , conformed order .
8 . Receiver Qualifies to Serve by Filing Oath and Bond . The newly appointed
30 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2022