RENT RECEIVERSHIP

In a Rent Receivership, the receiver is appointed to assure that rents are collected and retained, usually to pay a borrower’s deficiency. In many foreclosure scenarios, owners of properties have stopped paying their mortgage or their condominium/HOA assessments, yet, the property remains occupied by a renter. The owner collects the rent, has minimal expense and makes off with plenty of cash while the lender or association takes it on the chin. Typically, a newly-appointed receiver finds a property in this situation in dilapidated condition.

The extent of authority of a rent receiver is determined by the Court.

A receiver’s customary powers in a rent receivership include the collection and retention of rents, requirements to maintain the property, the power to evict a tenant who doesn’t pay the receiver, powers to enter into replacement leases(or a new lease if the property is abandoned). Wise receivers use modified leases that comport with the temporary nature of a rent receivership: the ability to break a lease once the property has changed hands(typically following foreclosure) and/or the power to negotiate a lower lease rate considering that the receiver typically rents properties in “as-is” condition and various indemnifications that correspond to the receiver’s immunity.

Receivers are appointed by municipal authorities to collect rents and maintain neglected properties that have been the subject of numerous habitability complaints over a long period of time. “Slumlord owners” typically own multiple properties within a single neighborhood and each of the properties suffers from neglect. The receiver’s job in this situation is to form a rehabilitation plan, gain funds through the sale of Receiver’s Certificates and incoming rents and to use those funds to improve the health and safety aspects of the subject property. Where a receiver has limited funds at his disposal, most courts rule that the health and safety of occupants is a primary priority of the receiver, with the least priority given to cosmetic or design changes that would improve the property’s marketability.

 

BUSINESS RECEIVERSHIPS

Receivers are appointed to take over businesses or business assets in Florida in a number of circumstances. First and foremost in business receiverships are when a business asset, typically real estate, is in default. In situations where the lender hasn’t been paid, it is necessary for the asset to be secured.

Lenders first try to work out a payment plan with the debtor. If the debtor is a failing business with impaired cash flow, an experienced lender knows a receiver must be appointed. In fact, in most commercial notes, there is a clause whereby the borrower has, in the event of a default, already consented to the appointment of a receiver.

So far, this seems like a simple example. But, considering that the real-property asset in this case likely houses a failing business, it is highly likely that the cash flow problems of the business is the core of the problem. It is also probable that creditors unrelated to the mortgagee have already begun collection efforts. In this instance, the receiver is appointed to take over the business and its assets simultaneously.

The symptoms of a sick business in dire need of receivership are: inventory shrinks as a result of impaired cash flow, business assets are removed from the business, sometimes moved to other entities owned commonly by the same shareholders/partners. Other typical symptoms are embezzlement, payments being prioritized to trade creditors instead of secured creditors, skimming of bank accounts, and payments to unknown sources.

The receiver evaluates the business, typically determining whether this business could be: (a)saved, through changes in the business operation, (b)broken apart and sold in individual components, (c)placed in bankruptcy protection, or (d)terminated with creditors paid pro-rata after the selloff of marketable assets.

In Florida, dissolution of various business entities is completed in a receivership. Corporate dissolutions are covered by Florida Statutes 607.1432 and Limited Liability Company dissolutions are detailed in Florida Statute 605.0704.

 

CONDOMINIUM AND HOMEOWNERS ASSOCIATION RECEIVERSHIPS

The term “blanket receivership” was coined in 2009 when the first “blanket” receivership was initiated in Miami-Dade County. A receiver was appointed by the courts to collect rents from tenants living within community associations when the owner was delinquent to the association.

In prior years, receivers were appointed to collect rents on an individualized basis. In other words, one receiver would be assigned to collect rents from a single property. For struggling condominium and homeowners’ associations, this process became burdensome and expensive, as individual court proceedings were required for the assignment of each individual receiver. The procedure, in practice, was seldom used.

The Florida legislature changed the statutes governing Florida condominiums and Homeowners’ Associations. Now, the courts have statutory authority to grant these blanket receiverships so that a single receiver can collect rents for all units in default within a given association. The court orders specify that they apply to any unit in arrears to the association at any given time, so the receivership is essentially perpetual and applies to different properties at different times, as they become delinquent. The legislature has further expanded the receiver’s authority so that empty and abandoned units within a condominium association can be rented by the receiver, providing another avenue for associations to gain much-needed dollars.

Blanket receiverships come about in a relatively painless court proceeding. The association’s attorney files a petition in the Circuit Court in the county where the association is located. The attorney introduces evidence to convince the judge of the necessity of the receivership. The attorney must establish that the association requires the appointment of a receiver to protect its asset: in this case, its income.

Once a receiver is appointed, the receiver must begin his or her work immediately by identifying the units subject to collection, initiating those collections and pursuing the renters aggressively if they don’t pay.

The receiver should account for his or her collection activities and then provide the proceeds to the association to restore its cash flow on an ongoing basis.

In order for this arrangement to work best, the association, its manager and attorney must work with the receiver, providing the receiver with records when requested. Since the receiver does not work at the property, itself, it is always helpful for association members to be aware of the receiver’s tenants and to notify the receiver when the tenant’s status has changed(i.e. the tenant moves without notice).

The relevant Florida Statutes are:

For condominium associations: 718.111 and 718.116.
For Home Owner Associations: 720.3085.

 

MARITAL DISSOLUTION

Although still rare, the courts are beginning to take advantage of the equitable remedy of receivership in difficult situations where there are issues about assets in marital disputes. Receivership, in the marital context, involves the protection of assets in several categories:

  1. Prior to a judgment for the division of assets, a receiver is appointed to preserve the assets.
  2. In some divorces, business assets sometimes must be placed in the hands of a court-appointed receiver, typically when the court has ordered that the business asset must be separated or sold to settle the equitable distribution of assets. The business-owning spouse may be accused of spiriting away parts of a business or business income(fraudulent transfer) to avoid paying what is due to the other spouse.
  3. Sometimes, assets, such as a home, must be placed in the hands of a receiver, and then sold. This occurs when one ex-spouse has been ordered to sell the house and refuses to do so or procrastinates. In extreme cases, the receiver may have to petition the court to have the ex-spouse removed from the property.
  4. A receiver can be utilized to collect pensions, annuities and other income when someone is ordered to and refuses to turn over those payments to their former spouse.

 

True fact: Sometimes, the mere threat of receivership results in a settlement. Nobody likes giving their possessions to a receiver!