My practice includes representing receivers in commercial mortgage foreclosure cases. Since we could see an uptick in commercial loan defaults this year, I thought I’d re-share a few tips related to receiverships over mortgaged real estate:
1. Review and understand the proposed order appointing receiver before agreeing to serve. Ask an attorney (like me) to review and help negotiate terms, as needed. Receivers can be personally liable for certain conduct or damages, so you need to go into the job with your eyes wide open.
2. Ensure your compensation is fair and profitable from the outset. See #1.
3. Before the receivership hearing, eyeball the property – drive by and/or inspect if possible. Understand the lay of the land.
4. Determine the plaintiff lender’s objectives with regard to the case and the property from the beginning: babysit the property only, improve the property, sell the property, etc.? Get a feel for the lender’s cost tolerance. As a practical matter, the plaintiff lender is the captain of the ship.
5. Once appointed:
a. Line up a receiver’s bond immediately.
b. Secure rents ASAP.
c. Ensure that hazard insurance is current.
d. Determine the status of real estate taxes and confer with the lender regarding any delinquency. Develop a plan with the lender as to how and when taxes should be paid, if at all. Send a confirming email and record the status/plan in court-filed reports.
e. Investigate the status of utilities and consider action.
f. Evaluate whether there is any non-real estate (personal property) collateral of value and, if so, learn what the lender wants you to do with it. Ensure that the action is covered by prior court order, or obtain order authorizing the action.
6. Hire an attorney unless (a) you have prior experience with, and trust in, lender’s counsel and (b) there is no apparent adversity with the lender. Some lawyers have the view that receivers should always retain independent counsel. I don’t necessarily share that opinion and tend to assess the issue on a case-by-case basis. Having said that, the trend is for receivers to have independent counsel, which probably is best.
7. Report, report, report. Inundate the lender’s representative and/or lender’s counsel with emails regarding significant issues and action. Timely file all reports required by the order appointing receiver. Full disclosure of operations is the best practice, especially if there are other creditors involved and/or an interested owner/borrower.
8. As to major decisions affecting the property, including significant expenditures, obtain prior written approval from the lender or lender’s counsel. See #7. Emails are easy. Use them. Archive them for your file.
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I represent parties involved with receiverships, including receivers themselves. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.