Welcome to Trigild eTips, a complimentary monthly publication written for lenders, servicers and other professionals dealing with commercial non-performing loans. Each month we cover specific issues to help you maximize your loan recovery. We welcome your questions and comments, and if there are others in your organization who can benefit from Trigild's eTips, please add their email address into "Join Our List."

This month's eTips was written by Kelley McLaren, Manager of Trigild's Receiver Services.

Update to the Order Appointing Receiver

The January and February 2008 eTips issues provided an overview of the issues that should be covered in an Order Appointing Receiver. Copies of these can be viewed here. With the surge in commercial loan defaults and increase in the use of receivers, we thought it appropriate to update that information with some additional matters of more recent concern.

Receiver's Oath and Bond. Most states require that the receiver file an oath and post a bond. In order to avoid delay in seizing possession of property and bank accounts, it is beneficial for the receiver's order to allow the receiver three days after the order in which to post the bond. While receivers should be able to obtain a bond within 24 hours or less, the amount is not set until the hearing and then the actual filing takes additional time. If the court will not allow the grace period, counsel should request that an email of fax copy be accepted for immediate filing, followed by the original.

Security Deposits. Although most state landlord-tenant laws require that all security deposits be held in a separate bank account, when dealing with a defaulting property we rarely find this to be the case. Typically security deposits are comingled with other funds or not accounted for. Obvious problems and complaints from tenants arise in each of these cases. For that reason, it is wise for the order to include language clearly stating that if security deposits were not specifically deposited into a separate account, and specifically identified by the borrower, the unidentified deposits need not be refunded or credited by the receivership estate to the tenant. This language keeps the burden on the borrower rather than the receiver while not specifically forbidding the receiver from granting a credit to certain tenants.

Owners Associations. The recent flood of defaults in housing developments and condo construction and conversions has added another list of issues for receivers. The receivership usually encompasses the unsold units, and the developer will often still control the board of the home or condo owner' associations, unless nearly all units have been sold. A common misunderstanding in receivership is the distinction between a receiver for a company and a receiver for specific assets of that company. In nearly every case, the receiver only has control over specific assets (the unsold units) but not the defendant/borrower itself. Since the receivership units are still part of the overall project and the owners association, it may be necessary for the receiver to take the developer's board seats in order to protect the project. The order should clearly state that the receiver has not been appointed receiver over the HOA, but should give the receiver the right to attend, participate in and vote the interest applicable to any unsold units. It should also allow the receiver the discretion, but not the obligation, to exercise such rights as receiver deems necessary to preserve and protect the receivership property whatever those may be.

Use of Funds. Although this may seem obvious, it is useful for the order to specify that the receiver shall pay only those bills the receiver considers reasonable and necessary for the operation and protection of the receivership property. We recommend also including some illustration of priority for use of funds, particularly in the event of cash shortfalls. Examples might include expenses of the receivership estate including insurance utilities, vendors, taxes and so on. The list and priority may vary for each assignment but this list will usually apply.

Suing the Receiver. While experienced judges and lawyers know that in order to sue a receiver for his or her actions, you must seek leave of the court that appointed the receiver. Adding such language to the order can save time and money in dealing with vendors, suppliers, franchisors and other parties.

Leases and Contracts. The ability to reject leases or contracts, while not an absolute receiver right in every jurisdiction, should always be specifically granted when possible. This will facilitate the receiver's ability to maximize the ultimate value of the asset and loan recovery by negotiating and/or altering these agreements.

Construction. With the current volume of construction projects in receivership is it important to detail exactly what the receiver's role will be in undertaking, continuing or ceasing any construction work, and any liability during and after construction. It should be clearly defined that the receiver is not taking over the developers role but only acting as receiver to protect the value of the asset(s) and is indemnified from claims relating to the construction after termination of the receivership.

Trigild News

Trigild was appointed receiver and management company of an independently owned, 88 room hotel in Oklahoma. The hotel is currently open and operating.

Trigild was also appointed receiver of a La Quinta hotel in Phoenix, AZ with 68 suites and guest rooms.

The receivership of a 126 unit apartment complex in Tucson was closed. During the receivership, Trigild increased leases by 15%.

About Trigild

Trigild is the only non-performing commercial loan specialist that combines receivership / trustee, management and disposition services under one roof. That means no coordinating multiple companies, and no duplication of fees. We have the expertise to quickly take control of the assets, maximize operating results, and speed recovery by selling the assets quickly through our national network of industry contacts. This is our core business, not a sideline. The results? Absolute certainty that you will achieve maximum loan recovery-faster, easier and more cost-effectively.