How and Why Are Receivers Appointed?

Receivers are appointed by the court as a neutral fiduciary, and may be done on a state or federal level. Their duty is to control assets, businesses and other real properties involved in litigation in order to preserve them during the pending outcome of said litigation. These appointments may occur during pre- or post-judgment proceedings, and may be related to Civil, Probate, Real Estate, Class Action or Regulatory actions.

The appointment of this neutral receiver is not a specific cause of action, but rather a provisional remedy provided for by the power of the state or federal court. California particularly has several statutes which provide for this appointment in the event of specific types of litigation against a part or entity.

Specific court language refers to a receiver as the "hands and eyes" of the court, thereby carrying out any necessary actions to preserve the assets of the receivership estate.

It is important to remember that a receiver is not a representative or agent for the party owning these assets or plaintiff; rather, a receiver is granted powers as an officer of the court to benefit all parties involved in the litigation. Receivers are typically required to hold and manage the businesses and assets in question, or sell the assets for liquidation purposes to produce cash.

Placing these real properties, businesses and other assets that are the subject of the litigation at hand into the control of a receiver allows for all parties involved to remain confident they are being managed and preserved properly.

Courts may ask the receiver, as a neutral fiduciary, to research past accounting records to verify where any funds were placed and by whom. They may also be required to discover and search for hidden assets or conduct general discovery for the court.

Due to the fact that the court has granted certain powers to the receiver, any refusals to provide records requested to find this information for the court could result in contempt proceedings against the refusing party.

Receivers are paid with the estate in question's assets, which also relieves a party to the litigation from funding this cost alone. Appointing a receiver is financially advantageous to the court as well, as any requests given the receiver could avoid unnecessary and numerous court appearances by the parties to the litigation.

By reducing the amount of research and cost necessary to discover these items alone, a court appointed receiver reduces cash outlay and angst during the related proceedings for all parties involved.

Distressed Real Estate and the Benefits of a Receiver

Some lenders will decide to pursue a non-judicial foreclosure, as provided in the original loan documents. When this remedy is taken and the lender becomes the sole title holder of a distressed real estate property, all income, as well as all the burdens and liabilities of the ownership of the property become theirs.

These burdens are further complicated if construction is under way at the distressed property, as the decision must be made to either complete construction or leave it as it is. This scenario, along with the responsibilities of taxes, tenants, leasing r and maintenance issues all become a legal obligation of the lender.

In order to reduce the exposure to a lender and the costs in managing distressed real estate, a receiver can be appointed. The receiver takes over the management of the property and all associated operational, insurance and tax aspects as a neutral third party. The length of this appointment may vary, but can help to avoid several problems the lender could face otherwise.

Appointing a receiver permits the receiver to sell the property "as is", as well as to hold the property to maximize the distressed property's value through improvements or appreciation, and can help prevent the borrower from further reducing the value of the property as a result of deferred maintenance.

Receivers not only limit the lender's liability, but provide the daily management and operations activities required to produce income from the property. This receiver may also provide construction advice and expertise without disrupting any current business taking place on the property.

Asking the court to appoint a receiver will save the lender time and money in allowing them to focus on their area of expertise as opposed to them managing the property themselves, and will help to encourage cooperation from the borrower. However, a receivership action never results in a waiver of the lender's rights against the borrower.

Perhaps most important to the lender is that appointing a receiver will maintain and increase the value of the subject property through the proper and continued management and assurance of all compliances required. Receivers can control the finances of the property, pay for maintenance and needed improvements through the receivership estate, and prevent further decay to the property.

Employee relations and labor laws are also followed by the receiver, and since he/she acts as a neutral 3rd party, they are typically not subject to any liability associated with pre-receivership acts of the borrower, thereby protecting the asset in receivership. A receiver creates a buffer for the lender and can serve to enhance the value of the asset in question.