Benefits of Receivership to Commercial Lenders

By Neil Sheaffer

When considering foreclosure, a commercial lender may not always think or know about the option of appointing a receiver, but a receivership can be a powerful tool to help enforce a mortgage or deed of trust. Receivers help ensure that payments are made towards the loan and that the property and its value are being maintained.

A receiver is an unbiased third party appointed by a court to take control of and manage property for the benefit of those who may have an interest in the property. In the case of a commercial lender, the receivership is initiated when a commercial property owner goes into default and the lender petitions the court to appoint a receiver either before a foreclosure action or concurrently with it.

The court-appointed receiver steps into the shoes of the property owner and is responsible for managing the property until the foreclosure is complete. The receiver’s powers are specifically outlined in the court’s appointment order, but generally, the receiver has the authority to manage existing leases or enter into new ones, collect all rental income, repair and maintain the property, take control of bank accounts, and take most, if not all, actions that the property’s owner would have the power to take.

In addition to providing stable management of the property, the presence of a receiver offers three primary benefits to a lender:

1. Receivers prevent rent skimming by ensuring that any income derived from the property is being directed towards paying the mortgage or maintaining the property.
2. Receivers prevent waste, which is the improper use of property that damages its value, by ensuring that the property is maintained and all necessary repairs are completed in a timely manner.
3. Receivers may sell the property if authorized by the court. A sale through receivership may produce more net proceeds than a foreclosure sale because receivership sales are conducted like normal, market sales.

Receivership, when used in conjunction with the foreclosure process, can help a lender preserve its interest in real property. Professionals at Griswold Law, APC have been appointed as a receiver over 100 times by courts across California to take control of disputed and/or distressed real property and businesses.