Can a receiver borrow funds?

A California court-appointed receiver may borrow funds. The process of borrowing funds is subject to court approval. The court receiver will need to identify the reasons for the borrowing which may include the preservation and management of the real estate, property, or business operations over which the receiver has been appointed.

The borrowing itself is accomplished through the issuance of receivers’ certificates. The certificate is the security for cash loaned to the receivership estate. It provides evidence of the debt and in many instances creates a super-priority lien that subordinates other lienholders. Property taxes, however, are not subordinated.

The receiver may negotiate the cost of the borrowed funds and thereafter after disclosure to the court, obtains an order approving the borrowing and issuance of the receivers’ certificate which is then recorded against the real property. Thereafter, the court receiver may use the funds as prescribed by the court order approving the issuance of the receiver’s certificates. The receiver must repay the loan with interest in order to remove the lien from the title.