Receivership: An Alternative Collection Method

**Originally Posted on Sep 15, 2011**

Introduction
A receivership is the court ordered appointment of a rental manager for a property.  The receiver (rental manager) is a disinterested person who manages the rental of the property, collects the rents and disburses the rents according to a court’s orders.  The receiver should be experienced and knowledgeable in rental property management.

The reasons for using  a receiver to collect delinquent assessments include :  to obtain payment of current assessments; to reduce past due assessments; to correct covenant enforcement violations; and to prevent waste and deterioration of the property.  A receivership is a good choice when the owner of the property cannot be located to be served with a lawsuit.

Criteria for a Successful Receivership

1. Assessments are not current.
2. The property is not owner-occupied, i.e., it is vacant or occupied by a tenant.
3. The property is not in foreclosure.
4. The property is in good condition and requires minimal expense to make it rentable.

Procedure For Appointment Of Receiver

1. The Association must have a lien for delinquent assessments.
2. A verified complaint (requesting the appointment of a receiver) along with other pleadings are filed in either county court or district court where the property is located.
3. Personal service of the summons and complaint on the owner is not required to have a receiver appointed.  However, personal service is desirable to enable the Association to get a money judgment for the delinquent assessments against the owner at the same time as the receiver is appointed.
4. A hearing may be required by the Court, and if so, witnesses from the Association may be called to testify.  The owner has the opportunity to object to appointment of a  receiver.
5. A bond is required, which is obtained by the receiver and ensures the receiver’s performance of his duties.
6. If there are existing tenants, the receiver provides a copy of the Court order of appointment to them, instructing them to pay the next month’s rent to the receiver.  If the property is vacant, the receiver markets and leases the property to new tenants.
7. The receiver manages the property, collects the rents, and applies the money to the receiver’s management fee, the maintenance/repair costs for the unit, the attorney fees to obtain the receiver, then to current assessments.  Most courts will authorize the receiver to also apply the rents received against the amount of delinquent assessments.  The Court may require the receiver to file periodic financial and status reports with the Court.  The receiver handles all management issues so the Association and its property management team need not be involved in the receivership.
8. The receiver continues to collect the rents until the assessments are current and the owner demonstrates the likelihood of continued payment or a transfer of the ownership of the property occurs.  If the owner fails to pay the mortgage and the property goes into foreclosure, then receivership must be terminated when the foreclosure occurs.

FREQUENTLY ASKED QUESTIONS AND ANSWERS

QUESTION:  When should an Association consider using a receiver?
ANSWER:  If a delinquent owner who does not live in the property demonstrates a pattern of non-payment of assessments, and the property is in rentable condition, an Association should consider seeking the appointment of a receiver.  A receivership is also an option if there is a danger of continued deterioration of the property, or the property has persistent covenant violations.  If we cannot locate the owner to serve a lawsuit, we may recommend a receivership.  We do not recommend starting a receivership if a public trustee foreclosure is in process, since the costs of the receivership might be higher than the recovery.

QUESTION:  Does the Association have to sue the owner for non-payment of assessments before it can resort to a receiver?
ANSWER:  No, but the lawsuit for unpaid assessments is part of the same action where we request appointment of a receiver.  The motion for appointment of a receiver may be filed as soon as the Association has recorded its lien for unpaid assessments; in most counties we do not need to obtain a judgment for unpaid assessments first.  If we can obtain personal service on the owner, we also seek a personal judgment for collection of unpaid assessments at the same time.

QUESTION:  Who appoints and selects the receiver?
ANSWER:  The Court appoints the receiver, but we ask the Court to appoint an individual selected by us.  We select individuals who are familiar with rental property management and have past experience as a receiver, since a bond and reports to the Court are required.  Generally, upon reviewing the resume of a qualified rental manager, the court approves the person we request as and appoints them as the receiver.

QUESTION:  Does the receiver have to be the Association’s property manager?
ANSWER:  No, the receiver should not be the Association’s manager.  The receiver should be an impartial, disinterested third person, with A person who has no relationship to the property and who is experienced in managing the same type of property involved is best.

QUESTION:  How long does it take to get a receiver appointed?
ANSWER:  The length of time it takes to appoint a receiver depends on the procedure followed by the Court where the motion for a receiver is filed.  In many counties, it takes less than a month to appoint a receiver after notice has been given or attempted to the property owner.  However, some Courts require a hearing or take longer to appoint a receiver.

QUESTION:  What does the receiver do?
ANSWER:  The receiver preserves the property and, in some instances, prevents the deterioration of the property by making repairs.  The receiver places tenants in the property, collects the rents, and disburses the money according to the priorities established by the Court’s order.

QUESTION:  Who pays to have the receiver appointed?
ANSWER:  The Association is responsible for paying our attorney fees for filing the motion for appointment of a receiver.  The receiver’s fees are typically paid out of the rental proceeds, and are fully recoverable from the owner as a cost of collection.  The receiver does not bill the Association up front.  The Association will only pay the receiver’s fees if for some reason the receivership is unsuccessful.

QUESTION:  What does a receivership cost?
ANSWER: We charge a flat fee for preparing and filing all documents necessary to appoint a receiver in county court (see our current fee schedule), which includes the cost to monitor and terminate the receivership.  In rare cases where the receivership is contested, or other unusual issues arise after the receiver has been appointed, then we charge our standard hourly rates for all post-appointment work.  We charge an hourly rate for receiverships that are part of our judicial foreclosure process.

Receivers typically charge from $100.00 to $150.00 per hour for their services, plus they must be reimbursed for utilities, repairs, advertising, changing the locks, and the cost of the bond.  However, neither the receiver nor the Association need to pay the mortgage on the property.  That means 100% of rents collected will be applied to cover the receivers’ fees and costs.

The total cost of a receivership depends on the condition of the property and whether it is already rented.  Expect receivership fees and costs to run at least $2,500.

QUESTION:  Will the Board or Association be liable if the receiver does something wrong?
ANSWER:  No, the purpose of the bond is to protect the Association from claims arising from the receiver’s
actions.

QUESTION:  Can the Board screen or approve tenants selected by the receiver?
ANSWER:  No.  As a neutral appointed by the Court, the receiver cannot take direction from the Board.  This is a protection for the Board, so an owner cannot later hold the Association liable for any damages caused by a tenant.

QUESTION:  How soon will the Association get paid after the receiver is appointed?
ANSWER:  In most cases, receivership fees and costs are paid first, then the receiver begins disbursing funds to the Association.   That means the first few months of rent generally go to pay the receiver.  Occasionally a Court will require the receiver not to disburse funds until after a hearing.  In that case, it may take longer for the Association to get paid.

QUESTION:  When does the receivership end?
ANSWER:  the receivership must be terminated if the ownership of the property changes or if the receivership generates enough money to bring the assessments current, reimburse the Association for its costs, and there is assurance that the owner will keep the assessments current.  The receivership also must be terminated if the owner or a member of the owner’s family moves into the property. The receivership is terminated by filing a motion to terminate.  The receiver must file a final report itemizing the actions by the receiver and accounting for the receivership assets before the Court will release the receiver’s bond.

QUESTION: What happens if a public trustee foreclosure action begins during a receivership? 
ANSWER:  The receivership remains in place until a public trustee sale.  The earliest a sale can occur is 120 days after the mortgagee begins a foreclosure by filing a Notice of Election and Demand.  Once a public trustee foreclosure starts, the receiver can only offer a tenant a lease term up until the sale date.

QUESTION:  How successful have you been in using receivers to collect assessments?
ANSWER:  We have obtained the appointment of a receiver in most cases where we have requested one.  By far the majority of receiverships successfully collect the delinquent assessments, either by the rents paid by the receiver or as a result of a settlement with the owner. In a few cases, receivers cannot recover 100% of the unpaid amounts.  Reasons why include filing of a foreclosure, an owner moving back
into the property, or a condition that makes the property unrentable and which is too expensive to be worth repairing.

Altitude Community Law P.C. originated the use of receivers to collect assessments in 1989.  Since that time, we have completed thousands of successful receivership actions throughout the state.  Our experience in placing receivers has proven to be invaluable in our continuing efforts to help associations collect delinquent assessments as efficiently as possible.