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CRE Finance World, Summer 2012

Property Sales in Receivership: Alternative to Foreclosure on the Increase Additionally, the potential for conflicts of interest raises many availability of financing. The specific terms of such lender financing, possibilities for an inexperienced receiver to open the door to a however, are issues between the buyer and lender and need not claim of lender liability. To use California as an example, receivers involve the receiver. The same is true for a potential loan sale by are forbidden from making any advance agreements with lenders the lender. The receiver should not participate in that negotiation as to any work post-receivership, any special negotiated fees in either, as beyond the scope of the receiver’s role. exchange for other work, etc. and are required to file a sworn affidavit that no such conversations have taken place. Since most Ultimately, a good receiver not only shields the lender from borrower receivers are nominated by lender’s counsel there is a natural claims of liability based on lender’s active participation in the suspicion by most all borrowers that the receiver is working for property’s operation, but also from “deep pocket syndrome,” which the lender. As an agent of the court, the receiver is subject to a inevitably emerges when various other creditors expect the lender variety of punishments if found to have lied on the affidavit and/ to make everyone else whole again. or subsequently taken any action that was not for the equal benefit of both parties. While the exposure for the receiver can be not Whatever the scenario, all involved parties should understand only penalties and disgorgement of fees, but potential loss of any that receivership is a complex legal process and there are many further assignments, the risk to the lender is far greater, as covered intricate details and legalities involved in the process. Not only do in the “lender liability” comments above. lenders and their legal counsel need to be well versed in the use of receivers to improve their recovery, but investors looking for If the receiver is also acting as the broker, lenders need to be very opportunities need to have a solid understanding of the current careful that the property was not being offered first to favored clients ever-changing CRE landscape as well. Understanding the benefits of the broker and that the property has been widely marketed. and nuances of receiverships and receivership sales can lead to Many receivers avoid acting in the dual capacity as the listing improved outcomes for all parties involved. broker to avoid the appearance of potential conflicts of interest. Bill Hoffman is president, CEO and founder of Trigild, a property management, Even when the receiver lists the property with an unrelated broker, receivership and loan recovery specialist headquartered in San Diego at the court still looks to the receiver as responsible for every action 12707 High Bluff Drive, Suite 300, San Diego, 92130. He can be reached regarding the property. As the court’s agent, a receiver is held to a at 858-720 -6700 or bill.hoffman@trigild.com. very high standard of accountability for any parties he or she hires. So what can a receiver discuss with a lender? The basic answer is anything the receiver also discusses (preferably at the same time) with the borrower, although courts will allow certain conversations among lender and receiver without including the borrower. Examples would be discussion about the lender advancing funds to the receivership estate to cover shortfalls, needed repairs, etc. The lender has no obligation to make such advances or loans — so it makes sense for the receiver to discuss this topic without including the borrower. If the receiver is selling a property, it is reasonable for him/her to talk privately with the lender or servicer about the A publication of Summer issue 2012 sponsored by CRE Finance World Summer 2012 61


CRE Finance World, Summer 2012
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