What does it mean to be a receiver of a property?

A receiver is an agent of the Court. In order for a receiver to be appointed, a lawsuit must be filed. A receiver takes legal possession of the property but the receiver does not become the owner of the property. The receiver is generally empowered to collect rent, manage the property, perform repairs and hold net proceeds until further order of the court.

The receiver over real estate is often known as a rents issues and profits receiver. This is also known as a real estate receiver. The types of real estate over which a receiver may be appointed are virtually limitless. This includes residential and commercial as well as specialty property.

In some instances, the receiver may be appointed over the actual ownership entity at the property. This would be known as an equity receiver. In other cases, a limited purpose receiver would be appointed only to take possession of the real property. This might be in connection with a loan default where a lender has filed a notice of default and is proceeding to foreclose on the property. Once the property is foreclosed, possession of the property would then be turned over to the successful bidder at the trustee’s sale.

The receiver can employ on-site managers and maintenance personnel, or the receiver may hire a third-party management company. The receiver collects rents and pays bills to protect the property and produces financial statements and narrative reports which are circulated to all parties on a monthly basis.

Generally, a receiver would record the order appointing the receiver so that it becomes of record against the property. In addition, if there is debt on the property, and the lender is not the moving party appointing the receiver, the receiver will need to make the monthly mortgage payments. Sometimes receivers may distribute cash flow to owners and partners but ordinarily can only do so with court approval.

Depending upon the authority granted to the receiver by the court, a receiver may also engage in the refinancing of the property or sell the property. It is important for the court receiver to use reasonable efforts to obtain the best financing or highest sales price reasonably possible. This is why it is so important to use receivership specialists that have the requisite skills to accomplish this task.

Sales proceeds are held by the receiver pending further order of the court and a receiver may obtain an order allowing for the sale of the property free and clear of liens where the liens are attached to the sales proceeds. Lienholders and creditors are paid in order of priority and based on their security interests.

Essentially, the receiver steps into the shoes of the owner and acts as the landlord and manager. The receiver holds most of the duties, powers, and obligations of an owner and also must use care in a professional manner consistent with the applicable standard of care. A court receiver has a duty to all creditors. This includes investors, trade creditors, lenders, and others that have an interest in the property. Therefore, the receiver must act accordingly with due care towards all creditors and interested parties.