Question: What happens if I sell the note after a receiver is appointed?
Answer: It is important to understand that when the lender sells the note with a foreclosure action pending and a receiver in place, the receivership does not end nor is the receiver released. The new lender steps into the shoes of the old lender with respect to this litigation. Subsequently, the new lender becomes the substituted plaintiff, the receivership appointment stays in effect and the receiver continues to maintain control of the asset until dismissed by the court. In most jurisdictions, the new note holder may ask the court for a hearing to have a receiver discharged after giving notice to all parties. In this scenario, however, the new lender does not gain possession of the property. Since the foreclosure is still not complete, possession does not return to the debtor until the foreclosure is completed. For this reason, the new lender will usually elect to keep the receiver in place.
Question: Who is responsible for any shortfalls in the receivership?
Answer: This is where things can get tricky. Typically, shortfalls in the receivership estate are the responsibility of the plaintiff/lender who asked the court to appoint a receiver. If a new party purchases the note, they become responsible for any shortfalls of the estate including those that existed prior to the purchase of the note. The seller and buyer should negotiate this responsibility along with the other terms of purchase and sale. The receiver is never required or even allowed to loan money to the receivership estate to maintain a property or its related enterprise (if any). Since without adequate funding the receiver is powerless, he/she will seek to be released, and possession would return to the borrower.
Question: If there are excess funds in the receivership estate upon discharge, to whom do they belong?
Answer: Frequently at the close of a receivership there will be funds remaining in the operating account, either from operating income or proceeds from a sale that have not been distributed. Absent any prior written agreement, the funds would go to the current lender.
Question: If we plan to sell the note, what is the best way to ensure there are no loose ends?
Answer: Keep the receiver in the loop. An informed receiver can assist the note seller and buyer in examining outstanding issues and help both parties to prepare for their negotiation by providing what information both parties should examine to ensure all loose ends related to the receivership are tied up prior to the sale. The options may include having both note holders execute a document outlining an agreed distribution to be presented at the hearing to discharge the receiver following foreclosure. Finally, don’t forget to keep the receiver informed of a proposed sale prior to it taking place. Unfortunately it has become commonplace for the foreclosure proceedings or note sale to conclude without the receiver being notified in a timely manner. Keeping the receiver informed helps eliminate loose ends and extra costs.
Trigild was appointed Receiver for a 76 unit multi-family project in Ypsilanti, MI. The units include two, three and four bedroom townhomes. The Receiver was granted approval to market the units for sale.
As receiver, Trigild sold the last unit of a 30 store portfolio of Hardees’s Restaurants located throughout Georgian, Louisiana, South Caroline and Florida. All stores were sold during the Receivership by either auction or individual sales, and Kim Hagen of Hagen Realty brokered the sale.
In separate actions, Trigild was appointed Receiver for two residential subdivisions in Las Vegas. The Receiver has authority to sell the units pending court approval.
Trigild was appointed Receiver and management company of 26 units of a 35 unit luxury condo development in Englewood, FL. The property features 16 boat docks and a swimming pool. Pending court approval, the Receiver has authority to sell the units pending court approval.