Looking for a quicker, cheaper alternative to a foreclosure, then a receiver sale may be the perfect option for you. These types of sales not only save time and money, but they also preserve the value of the property and minimize potential losses and exposure to liability.
You’re saying to yourself how is that possible? Well, in a receivership situation, the property doesn’t just stand by idly waiting for the foreclosure process to take its course; the property actually has the ability to generate income and be protected from deterioration or vandalism while waiting to be sold. The defaulted owner/borrower is displaced by a court-appointed receiver who not only manages and controls the property, but has the ability to sell the property with final court approval and consent of the lender, borrower and any junior lien holders.And, if cost and time advantages are not enough, in a receiver sale, as distinguished from a foreclosure, the Lender has the ability to re-work its defaulted loan so that the third-party new buyer can assume a modified version of the defaulted loan. Therefore, allowing the lender to obtain a significant greater recovery than if the property went to foreclosure.
You’re probably saying to yourself, while that’s all well and good for the lender, what about the borrower? The question to be asked is not why would a borrower consent to a receiver sale, but why would they not do so. Typically, the borrower will consent to such a sale if there is little or no equity in the property. Another key point which tends to tip the scale in favor of borrower approval is if they are able to reach a resolution with the lender regarding their personal loan guaranties.
While a receiver sale does have it benefits for lenders and even borrowers, from a title underwriting perspective there are some key issues to look out for. The first-step in the receivership scenario is the appointment of the receiver. As a title underwriter, in reviewing both the Motion and Order Appointing the Receiver, it is important that the Order, among other things, contain the authority of the receiver to not only manager and operate the property, but gives them the authority to market and sell the property. Also, it is important that the Order be consented to by the defaulted borrower/owner.
Once the receiver is appointed, the next step is to focus on the Motion and Order which grants the receiver the authority to sell the property (and more specifically the authority to sell the property per an agreed to third-party sales contract). Like the previous Order, this Order requires the consent of the borrower/owner, and if allowable under the law of the jurisdiction wherein the property is situated, the Order should contain the borrower’s/owner’s waiver of appeal and redemption rights.
Besides reviewing the Motions and Orders, a title underwriter should look at other factors when underwriting a receiver sale. Is the property in question in fact under water? How does the current property value compare to the current outstanding loan amount? Who has an interest in the property other than the defaulted borrower, are there any junior lien holders? Did the borrower object to or appear in any of the actions appointing the receiver or granting the receiver the authority to sell the property?
Because of their many benefits, receiverships have been on the rise in recent years in the real estate industry. While these types of sales can, of course, present some challenges, they do offer both the lender and borrower a favorable alternative to a foreclosure sale.