Thursday, March 6, 2014

To Receive Or Not To Receive, That Is The Question: Legal And Accounting Principles For Board’s And Associations To Consider When Contemplating A Request For Appointment Of A Rent Receiver

Undoubtedly, in the current economic climate, many community associations and boards are faced with the dilemma of dealing with and managing units that are vacant and have been abandoned by the owners. Generally, these units are burdened with significant debt and maintenance arrears that continue to accrue each month. Additionally, these units are commonly in the process of being foreclosed by the lender. However, the lender is usually not acting expeditiously to advance the foreclosure proceeding to a sheriff’s sale. As such, associations and boards have become interested in requesting the court to appoint a rent receiver with authority to obtain a tenant and to rent and to lease the unit and to apply the income received to pay down the arrears. Oftentimes, this may be the only opportunity an association will have to achieve some sort of monetary recovery against an absent and or judgment proof owner.

Since an application must be made to the court, expenses and legal fees will necessarily be incurred and a decision also needs to be made to select a qualified entity or individual who will be approved by the court to be the appointed receiver.   

Some of the legal issues to consider are as follows: First, there is no guarantee that the application will be granted. The relief requested is equitable in nature and the court has discretion to grant or deny the application based on the facts. Currently, there is no statutory basis or specific legal precedent that affords associations the absolute right to have a receiver appointed. The decisions on these applications vary by court and by judge.

Most courts and judges will require that the foreclosing lender be served with notice of the application and the lender will generally submit an objection and opposition to the application based on protection of the alleged superiority of its first mortgage and security interest.

Please click here to read the entire article which appeared in the January 2014 edition of Community Trends.

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