Still, the technical and litigious nature of receiverships and bankruptcy cases
isn’t for everyone. Knowing the details about breaking into the business and
staying within these lines might help you determine your interest in these
Wi Th EvEry BloW, comEs an opporTuni Ty
Early in my property management career, I managed an office property where the
owner had defaulted on the loan. One day, while on the property, I saw the legal
notice announcing its pending foreclosure and immediately wondered about my
contract to manage the property and my related income. I learned I could apply
to become a receiver, while still retaining my management duties and continue
receiving income from this property.
I quickly learned a receivership is the by-product of a civil lawsuit. Most
times the core issue is a mortgage payment default. The common remedy in
this type action is to appoint an independent third party to hold the property
and collect the rents and profits. Receivers are also expected to “protect and
preserve” the assets they hold.
But before I could even make it through the formal receivership court hearing process, the borrower filed for bankruptcy—and I was prepared to say
goodbye to my largest account, as well as my budding receivership career. With
every blow, however, comes a new opportunity.
I learned I could apply to become a federal bankruptcy trustee—also a fiduciary for the courts and creditors, like a receiver. Bankruptcy trustees come
into play if a state court receivership moves into the federal court system
because a defendant files for bankruptcy protection. Trustees are supposed
to protect the property’s equity and creditor’s rights, as well as “protect and
preserve” the property like a receiver.
While my experience breaking into the business stemmed from one failing
property in my portfolio, current trends indicate now might be the time to
consider receiverships and bankruptcy cases as new lines of business.
The last two market downturns I experienced lasted about four solid years
each. During both periods—even with prime rates extremely high in the early
1980s—some form of financing was available to finance properties. In the current marketplace, financing is non-existent.
Also, pending commercial real estate loans maturing between 2010 and 2014
are in trouble, according to Foresight Analytics, a provider of real estate market
consulting services. In Oakland, Calif., more than 36 percent of the $270 billion
in commercial real estate loans maturing in 2010 are under water.
Foresight predicts almost 50 percent of all maturing commercial loans in
2011 and 63 percent in 2012 will be upside down, and $770 billion in loans will
be upside down in 2014. It is hard to ignore current trends. Receiverships and
bankruptcy cases are a means to capitalize on this marketplace and stabilize or
increase your bottom line.
Don’T Jus T accEp T Wha T is
hanDED To you
When approached by a party to serve
as a receiver, you must know how to
manage the work.
Before the court even formally
appoints you as the receiver, preview
the property you’re being directed
to by either the lender or insolvency
lawyer wanting you to take the case.
Gain an understanding of the
property’s needs in order to make it
a viable asset. I find out everything I
can about the subject property, typically confidentially without notifying
the current ownership.
I also ask for the authority to
review and amend (if necessary) the
attorney’s initial Order Appointing
Receiver (OAR)—a legal document
that defines the duties and powers of
the receiver as well as the parameters
of the receivership estate. I make sure
I add the appropriate power in the
OAR to effectively run the property
Examples of provisions in the OAR
might include: the right to administer
and manage the property’s business
affairs, funds and assets; appoint legal
counsel, clerks, consultants, property
management teams or assistants as
needed; review mail in the case of
defendants who have not been forthcoming or are outright dishonest
about their business’ state of affairs;
sell the property; manage the property; and put the property into sellable
condition, including making expenditures for reasonable and necessary
maintenance and improvements.
It is possible to ask for an all-inclusive “broad powers” OAR that
includes powers you do not necessarily need to be effective; however,