First off, what is a receiver? A receiver is a neutral individual or entity appointed by the judicial civil court to act on behalf of a defunct entity. In theory, a receiver is necessary to step in and manage the assets of the defunct entity in an effort to conserve their value so any creditors may attempt to maximize their recoupment of losses.
For example, a lender has a $5M mortgage on a shopping center now worth $1M. The owner of the shopping center has dissolved and has no desire to maintain the “underwater” property. Rather than waiting the extended time period to foreclose the mortgage and take the property via certificate of title (up to two years), the lender may petition the court to immediately have a receiver appointed who may collect rents, maintain the property and pursue offers to sell. The immediate action may preserve the asset’s value and aid the lender in recouping a portion of their investment.
A petition for receivership is not an automatic approval. The courts realize that there is a fine line between violating an owner’s right to possess the property and needing to protect a lienor’s interest in the asset. Because of this, courts will typically only approval the appointment of a receiver when it’s deemed absolutely necessary.
The Receivership Process
The process of appointing and empowering a receiver is as follows:
- Petition for appointment. The plaintiff files an action against the borrower (usually at the beginning of a foreclosure case) for the court to appoint a receiver.
- Order Appointing Receiver granted. If the court approves the petition, an Order Appointing Receiver will be issued. This document states which powers the receiver has, which powers they do not have and what actions would require a court order of authorization. A certified copy of this document should be recorded in the county public records.
- Order Authorizing the Sale. As detailed in the Order Appointing Receiver, certain actions will require court approval. Must underwriter’s will require that an Order Authorizing the Sale be obtained for all deeds out of the receiver. A certified copy of this document should be recorded in the county public records.
The basis for a receiver’s power is derived from various sources. Case law, common law and statutes touch on the powers available to a receiver, however, the Order Appointing Receiver is typically viewed as the governing document. This order must be reviewed to verify what powers the receiver has, and which ones will need to be approved by the court. See 608.4492 F.S. for examples of requirements and powers of receivers of limited liability companies.
While some Florida statutes support the appointment of receivers, case law is not clear on if the civil court has the right to seize one’s property without going through the foreclosure process. This gray area has caused most title insurance underwriters to be cautious about insuring transactions where a deed is being obtained from the receiver only – a deed from the owner/borrower is typically also required.
Title Insurance Requirements for Property Sold By a Receiver
From a title insurance standpoint most underwriters recognize that the receiver has some interest in property, however, they take a conservative stance that interests of the property owner and any lien-holders must be released. For a refresher, read more about What is Title Insurance.
- Record a certified copy of the Order Appointing the Receiver. This document must also be reviewed to confirm what the receiver may do, what they may not and what they may do with court approval (court order).
- Record a certified copy of the Order Authorizing the Sale.
- Record a Deed from the Receiver to the Purchaser.
- Record a Deed from the Owner/Borrower to the Purchaser. As detailed in the above Receivership Controversy, most underwriters will decrease the risk of a title claim by requiring that the Owner/Borrower also deed the property to the Purchaser.
- Record releases of ALL liens/mortgages/etc. encumbering the property. Despite some case law ruling the receiver to sell the property free and clear of all liens, most underwriters have taken the position that a receiver sale will not wipe out all liens like a foreclosure would.
- The foreclosure case must be dismissed with prejudice and any Lis Pendens terminated.