Court Appointed Rent Receiver
Equity Real Estate Management LLC has been providing rent receivership services for lenders such as Oritani Bank, Kearny Bank, Columbia Bank and the Bank of China as well as other private lenders and institutions of nonperforming commercial loans. Lenders understand the benefits of working with an expert during these situations. Our experience of the court system and the issues that arise during this time makes us an invaluable tool to help you through this difficult time.
The rent receiver collects rents, maintains, repairs the property, manages existing leases and enters into new leases, ensures that contractors and service providers are paid, and takes all necessary actions to preserve the property’s value and or to sell the asset.
RENT RECEIVERS DUTIES:
SECURE THE PROPERTY – The first step in taking custody and control of the property is securing physical asset and the information needed to operate the property (obtain all available copies of leases, contracts and bills).
MANAGE LEASES – The receiver reviews all existing leases to make sure all the obligations set forth in the lease are being met. Additionally in the interest of maximizing the property’s value, a receiver can analyze rent rates and tenant performance to determine upon execution of the lease whether or not the lease should be renewed.
MARKET VACANT SPACES AND ENTER INTO NEW LEASES – Where there are vacancies a rent receiver may be authorized to enter into new leases.
MAINTAIN THE PROPERTY – The receiver diligently maintains the asset not only to preserve its value but also lessens the likelihood of new claims relating to the property’s deterioration.
MAKE NECESSARY REPAIRS - Not all repairs are necessary to preserve or increase the value of a asset. The receiver will review and determine which repairs are necessary to preserve the value of the asset.
NEGOTIATE AND PAY EXPENSES – Expenses can include such things as property taxes, insurance premiums, and amounts owed to contractors and service providers. Ensuring that these are paid in full and on time can prevent liabilities such as tax liens, mechanics liens, or uninsured losses. This also ensures that a borrower does not use income generated by the income of the property to pay non-property expenses or to pay other creditors.
Additionally, where property-related contracts with the borrower are expiring, or additional contracts required, the receiver can negotiate their pricing and terms.
RETAIN PROFESSIONALS - While receivers are expected to have expertise in many aspects of commercial real estate, there are areas where engaging and paying a third party professional to help in the receivership duties makes sense. For example, if the property is still in construction, the receiver could hire a general contractor to complete the project. Or if the receiver has been authorized to sell the property, it would be reasonable and prudent to hire legal counsel that understands local contract, zoning and permitting laws.
APPEAL PROPERTY TAXES – As a part of its efforts to maximize a property’s income by in part minimizing it’s expenses, the receiver may appeal the asset’s property taxes or contest the property’s valuation.
REPORT TO THE COURT – Receivers make regular reports to the court of its activities, expenses, property income and other items specified in the receivership order.
THE BENEFITS AND PROCESS OF A RECEIVERSHIP SALE.
Pursuing a foreclosure action to its completion through final judgment and auction can be very costly and time consuming for the lender. The Rent Receiver may be authorized to market and sell the asset before foreclosure, thus creating a significant benefit to all parties involved.
The receiver has the ability to possibly reduce the total cost of selling an asset, bring in a higher sales price, and protect a lender from certain liabilities.
HOW IS A RECEIVER APPOINTED? –
Most commercial mortgages give the lender the right to request a receiver upon a borrower’s default. While some courts find this is sufficient authority to grant an order of receivership, other courts may require additional proof that the request is reasonable and necessary. Generally, the decision to appoint a receiver is completely within the discretion of the court.
Depending on the terms of the commercial mortgage, a lender may request a receiver upon the borrower’s default or as a part of its foreclosure action. Following such request, some courts will grant a receivership ex parte, meaning it grants a receiver based on the lender’s request and supporting evidence without notice to the borrower.
There are no universal eligibility requirements for a receiver, though the courts generally demand that the receiver has experience in the areas required for receivership (e.g., property management, development for unfinished properties, sales and marketing where a receivership sale is contemplated, etc.).
The order appointing the receiver details their powers and duties. Some of the items typically covered include: (i) a description of the property, (ii) the reason why receivership is justified, (iii) the specific powers of the receiver, including those powers that aren’t universally granted, such as the right to sell, borrow funds, and engage other professionals, (iv) the timing and substance of the receiver’s reports to the court, and (v) the receiver’s right to possess the property and borrower’s records relating to property.
Equity Real Estate Management LLC understands that this situation is a last resort for lenders and avoidance is preferred. However, when no other alternatives are available and the lender must take legal action to reclaim the property, building a solid team with experienced professionals is cruicial to mitigating the losses already incurred.
If you would like to have a discret conversation about Rent Receivership, please call Phil directly at 201-261-4300 x112.