Question: We have a loan on a fractured condominium development that is in default — some units have sold, some have not — and believe a receiver is necessary. Under these circumstances, what will the Receiver’s estate include?
Answer: The Receiver is appointed to protect and maintain whatever assets are listed in the court order. This can be limited to a specifically stated property — up to and including all of the assets that serve as the Lender’s collateral. Typically, especially in first mortgages, the Receiver controls only collateral assets, not the borrowing entity nor borrower’s position.
Question: What about the Homeowner’s or Condo Owner’s Association? Shouldn’t the Receiver take control of that as well?
Answer: Legally and operationally, this is new territory and requires time to evaluate. Ultimately, the Receiver must have the tools, flexibility, and options necessary to fulfill its obligations to protect, maintain and operate the assigned assets — as dictated by the Order Appointing the Receiver. Circumstances may vary, but applicable tools may include control of the Owners’ Association board of directors. Ideally, the court order will allow the Receiver to take the appropriate – and necessary — actions. If not, a subsequent order can be sought to provide this authority.
Many aspects of the day-to-day condo operations that affect the Receivership estate are established through the Owner’s Association’s documents — among them Declaration of Condominium, Articles of Incorporation, By-Laws, and Rules and Regulations. Related issues are structured to be addressed through the Owners’ Association board as well, and may range from entering landscaping contracts to dictating construction parameters and requirements. The benefit of having the receiver and his/her agents on the board is to ensure that no key decisions are made that negatively impact the estate.
In addition, a Receiver who serves on or even controls the board can execute responsibilities more efficiently, as well as allow the board to appropriately utilize funds from owner assessments.
As board members, the Receiver and his/her agents are separately obligated to serve in the best interest of the Owners’ Association, which could lead to a conflict of interest. Board members must fulfill specified responsibilities, including periodic meetings and maintaining minutes, ensuring an annual (or otherwise defined) membership meeting, accounting for membership assessments, filing state and federal tax returns, engagement and oversight of professional association management, budget formulation and other items. This could potentially create conflict — especially when a significant number of the Receiver’s units are in a rental pool — as there may be one management firm for the Owners’ Association and a second firm for the Receivership estate.
Question: So how do you decide if you want the Receiver on the Board?
Answer: This is a decision for the Receiver’s discretion. Various circumstances must be evaluated when considering the overlapping roles of the Receiver and the Owners’ Association. What is the status of construction and development? On-going construction, especially when delayed, can easily become a sore point with existing owners. How is the developer’s funding of the Owners’ Association structured? Typically the organizational documents define the process and timing for setting assessments, including the developer’s contribution, and will impact cash flow demands on unsold units. This can become dicey when identifying the party responsible for making payments, — additional complications may arise when the responsible party is unable or unwilling to fund. Because of the vagaries in budgeting and funding, cash-on-hand often does not converge harmoniously with cash requirements. These differences must be addressed.
It is important to understand that each property has unique operational circumstances, funding capacities and board responsibilities. All must be carefully considered prior to determining whether to take action through the board or the Receivership order. Over time, certain changes may dictate that the decision be changed. However, once the board position is taken, reversing the action is extremely difficult. For this reason, to determine the best option, each property must be carefully evaluated on a case-by-case basis.
Trigild was hired to secure and close 37 Bennigan’s and Steak & Ale restaurants in 13 states, including Texas, New Mexico, Georgia, Indiana, Florida, Michigan, Colorado, Minnesota, Ohio and Pennsylvania.
In a separate action, Trigild was appointed receiver for 23 Steak & Ale locations. As receiver, Trigild has authority to sell these restaurants – a mix of fee simple and leasehold properties – with the court’s approval.
Trigild was appointed Receiver for a 206 lot residential development with 21 completed homes in Central California. Trigild has the authority to sell the individual units or the entire development.
Trigild was appointed Receiver for a recently closed 106 room hotel in Oklahoma. In order to restore the enterprise value, Trigild will reopen the hotel to position it for a more favorable recovery.
Trigild was appointed Receiver for seven casual dining restaurants located in Wisconsin and Illinois with the authority to sell the restaurants. All restaurants are open and Trigild is the management company