Blog

By Neil Sheaffer

At the time of writing this post, the number of Coronavirus (COVID-19) cases in the United States is rising. The World Health Organization (WHO) officially declared a pandemic. The Governor of California issued a “Stay-at-Home” Order to reduce the spread of the coronavirus by limiting non-essential activity. The courts in California are generally closed to the public. Being engulfed in the receivership industry, we have extensive experience with unsafe and unsanitary living conditions. Griswold Law often deals with properties that pose significant health and safety risks to communities across California. However, the COVID-19 outbreak is the first public health emergency that caused California to quarantine itself. Griswold Law is adapting as quickly as possible to these changing circumstances.

Health and safety receivers have many tools available to them to aid in the rehabilitation of nuisance properties, but arguably nothing is more important than the availability of super-priority funding. Though super-priority liens have been authorized by courts in California since at least 1915 (Title Ins. & Trust Co. v. California Development Co. (1915) 171 Cal. 227), the 2019 case of City of Sierra Madre v. SunTrust Mortgage Inc. is a landmark development, because it brings this authorization into the 21st century by explicitly reiterating the availability of super-priority funding to receivers.

Cannabis businesses are not eligible for bankruptcy protection due to the federal prohibition against cannabis. Therefore, the receivership remedy is an effective path to address the struggles of a cannabis business. Seeking and obtaining a court-appointed receiver to take control of and operate a distressed cannabis business can be initiated by a lender affected by a failing business loan or a partner in the cannabis business alleging financial mismanagement.

A Health and Safety Receivership is an effective legal remedy under California law that facilitates the reestablishment of substandard properties, which include properties that show problems of hoarding, drug/slum activity, fire or water damage, unpermitted construction or habitation, or properties that have been abandoned. There are many substandard properties across California that are clearly neglected and/or vacant with no useful purpose. These properties are an eyesore to the public and can be a danger to the health, safety and welfare of the surrounding community. Health and Safety Receiverships can reduce the number of substandard properties and demonstrates to the community that the city or county is taking steps to rehabilitate problem properties.

Health and Safety Receiverships can successfully rehabilitate distressed properties within a community. A receivership is a legal and equitable remedy that allows for the possession and control of property by an unbiased third party referred to as a Court Appointed Receiver. A Court Appointed Receiver is a neutral third party appointed by the Court to take temporary control over substandard properties that are subject to a lawsuit. A receiver is not an advocate for any party but instead is an advocate for the court to protect and preserve the property. Once the court appoints a receiver, the property is under the direct control of the court through the receiver. A receiver’s authority is derived directly from the appointing court. The receiver is responsible for the general repairs and maintenance to the property and for ensuring that the property is brought into compliance with State and local codes.