THE INS AND OUTS OF RECEIVERSHIPS
Photo on table of contents by Juan Silva receiver is typically required to file an oath and bond ( in an amount determined by the court ) to qualify as the receiver in the case . The receiver cannot undertake any duties until this step is completed .
9 . Receiver Commences Duties . Duties are pursuant to the authority granted to the receiver by the court order .
SPEAKING THE LANGUAGE Just like commercial real estate has its own set of phrases and terms that could leave an unfamiliar party completely at a loss when two professionals are deep in discussion of a property , receiverships have specific jargon and a set of terms that distinguish those in the know .
The following terms are far from an exhaustive list of the terms of the trade , but they are a start in learning to speak the language :
Bonds . A receiver is required to post a bond in an amount fixed by the court , or the court can waive the requirement to post a bond . Until the receiver has posted the required bond , the receiver is not qualified to act and is legally not entitled to commence his or her duties . The party requesting the receiver ’ s appointment may also be required to post a plaintiff ’ s bond if the receiver is appointed on an ex parte basis .
Confirmation . If a receiver is appointed on an ex parte basis , the court is generally required to schedule a hearing to confirm the receiver ’ s appointment within the statutory period from the date of the ex parte appointment . Until the receiver ’ s appointment is confirmed and made permanent , a prudent receiver should not take extraordinary action .
Contempt . If a party fails to comply with the terms of an injunction , after knowledge of the terms , the party is subject to being held in contempt of court . The court can impose penalties in the form of monetary sanctions and even incarceration .
Court of Equity . The appointment of receiver is an equitable remedy . For a court to appoint a receiver , the court must conclude after reviewing the evidence that the appointment of a receiver is fair and warranted under the circumstances .
Final Account and Report . A receiver is required to prepare and file with the court an accounting and report of his or her administration unless the parties agree to waive the preparation . The accounting must include all financial activity of the receivership estate and make available to the parties the supporting documents . The court must approve the receiver ’ s final accounting before the receiver is discharged .
Oath . In order to qualify to act , a receiver is required to prepare and file an oath which states that he or she will faithfully perform their duties according to the applicable state laws and the United States . In addition , the oath also must state that the receiver has not entered into any agreement with any party with respect to the operation of the receivership estate or the disposition of the asset .
Order . The court issues an order appointing a receiver based on an application by one of the parties to the pending litigation . The order sets forth the receiver ’ s powers , duties , and responsibilities , and the receiver is required to comply with the provisions of the court ’ s order . The receiver can seek instructions from the court , if necessary ,
Receiverships are an interesting , if complex , niche within commercial real estate , but the potential for business is undeniable .
and the court can issue additional orders . Similarly , a court order must be issued by the court to terminate the receivership .
Receiver ’ s Certificate . A receiver ’ s certificate is an obligation of the receivership estate that evidences a senior debt to most other encumbrances on the property over which the receiver has been appointed . The receiver ’ s certificate is a negotiable instrument similar to a promissory note . It is only effective after court approval and is typically requested in situations when a receiver requires additional funds to operate the property . It can subordinate deeds of trust / mortgage secured debt .
Remedy ( Not the Same as Bankruptcy ). The appointment of a receiver is a provisional remedy and not a cause of action that is included in a lawsuit . Also , a receiver can be appointed in both state and federal courts . Bankruptcy cases , for example , are only filed in the United States Bankruptcy Court and are governed by the United States
Bankruptcy Code . A receivership is not a bankruptcy case .
Rent , Issues , and Profits . In most standard deeds of trust , there is a provision that the borrower ( trustor ) assigns to the lender all rents , issues , and profits ( assignments of rent clause ) that may be generated from the collateral . As long as the borrower makes their payments to the lender , the borrower is entitled to retain the rents , issues , and profits . However , if a default under the terms of the deed of trust occurs , the lender has the right to file a lawsuit and seek the appointment of a receiver to collect the rents , issues , and profits derived from their collateral . A rents , issues , and profits receivership is a real estate receivership .
Stipulation . A stipulation is an agreement among the parties to the litigation that becomes effective when approved by the court ’ s order . The use of stipulations in litigations will benefit all parties by saving costs and time . With a working knowledge of receiverships , the next natural question is : ” So , how do I get business ?” In this case , there are four steps to tapping into this area of CRE :
1 . Exhibiting knowledge of the process is a must . The glossary of terms included here can help , but a working knowledge of receiverships is best gained by talking to those involved and learning from more experienced professionals .
2 . Agree to special terms of listing agreements / fee structure .
3 . Attending trade organization events and exhibiting corporate knowledge can establish connections in this space . Networking never goes out of style .
4 . Professional designations and qualifications , such as CCIM , are a major step in separating yourself from the competition .
Receiverships are an interesting , if complex , niche within commercial real estate , but the potential for business is undeniable . With education and experience , commercial real estate professionals can tap into this market .
Editor ’ s note : This article was adapted from the
CCIM Institute course , “ Real Estate Receiverships .”
Stephen J . Donell , CCIM , CPM President of FedReceiver , Inc ., a firm of court-appointed receivers with extensive experience in both state and federal court
Contact him at steve . donell @ fedreceiver . com .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 31