Distressed Real Estate and the Benefits of a Receiver

Steve Donnell
April 29, 2009 — 1,237 views  
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Some lenders will decide to pursue a non-judicial foreclosure, as provided in the original loan documents. When this remedy is taken and the lender becomes the sole title holder of a distressed real estate property, all income, as well as all the burdens and liabilities of the ownership of the property become theirs.

These burdens are further complicated if construction is under way at the distressed property, as the decision must be made to either complete construction or leave it as it is. This scenario, along with the responsibilities of taxes, tenants, leasing r and maintenance issues all become a legal obligation of the lender.

In order to reduce the exposure to a lender and the costs in managing distressed real estate, a receiver can be appointed. The receiver takes over the management of the property and all associated operational, insurance and tax aspects as a neutral third party. The length of this appointment may vary, but can help to avoid several problems the lender could face otherwise.

Appointing a receiver permits the receiver to sell the property "as is", as well as to hold the property to maximize the distressed property's value through improvements or appreciation, and can help prevent the borrower from further reducing the value of the property as a result of deferred maintenance.

Receivers not only limit the lender's liability, but provide the daily management and operations activities required to produce income from the property. This receiver may also provide construction advice and expertise without disrupting any current business taking place on the property.

Asking the court to appoint a receiver will save the lender time and money in allowing them to focus on their area of expertise as opposed to them managing the property themselves, and will help to encourage cooperation from the borrower. However, a receivership action never results in a waiver of the lender's rights against the borrower.

Perhaps most important to the lender is that appointing a receiver will maintain and increase the value of the subject property through the proper and continued management and assurance of all compliances required. Receivers can control the finances of the property, pay for maintenance and needed improvements through the receivership estate, and prevent further decay to the property.

Employee relations and labor laws are also followed by the receiver, and since he/she acts as a neutral 3rd party, they are typically not subject to any liability associated with pre-receivership acts of the borrower, thereby protecting the asset in receivership. A receiver creates a buffer for the lender and can serve to enhance the value of the asset in question.

About the Author

James and Stephen Donnell provide a practical and results oriented approach to all cases. They have been appointed in hundreds of cases in both federal and state court. Combined, they provide 40+ years of experience and have acted as receivers in cases involving individuals, government entities, commercial and private lenders as well as city and district attorneys. Visit FedReceiver.com for more information.

Steve Donnell