Uniform Laws Update

Volume 26 No. 3

Uniform Laws Update Editor: Kieran Marion, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602–1917, kmarion@uniformlaws.org. Guest Editor: Thomas Hemmendinger, Of Counsel, Brennan, Recupero, Cascione, Scungio & McAllister, LLP, Providence, Rhode Island. He serves as chair of the ULC Study Committee on the Appointment and Powers of Real Estate Receivers and is a Rhode Island Uniform Law Commissioner.

Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.

New ULC Study Project on the Appointment and Powers of Real Estate Receivers

As mentioned in the January/February issue of Probate & Property (at 9), the Uniform Law Commission (ULC) established a Study Committee on Appointment and Powers of Real Estate Receivers at its 2011 Annual Meeting. Receivership is an equitable remedy, sometimes sought by lenders to enforce defaulted mortgages. Usually, a commercial real estate mortgage or deed of trust explicitly provides that a mortgagee can seek a court-appointed receiver for the mortgaged premises after the mortgagor defaults. The instrument often states that the mortgagor consents to the appointment.

Once appointed, a receiver takes possession of the premises and, under the court’s order of appointment, preserves and manages the property pending the completion of a foreclosure sale. Mortgage lenders traditionally seek the appointment of a receiver in a number of situations, especially when property is located in a state where the foreclosure process takes more time or potential waste or deterioration threatens to reduce the property’s value. The receiver also may address environmental issues or concerns with personal property used in connection with the real estate.

There is very little comprehensive state statutory guidance, however, regarding the appointment of receivers and, perhaps more importantly, the scope of their powers. The court order may clarify powers and provide guidance, but a receiver can encounter situations after taking possession for which her authority to act in a certain manner has not been addressed.

Through its initial work, the Study Committee has identified issues that a Drafting Committee, if appointed by the ULC, could potentially consider and address in a uniform act. In general, these issues are:

  1. Scope of a Uniform Act. Whether an act should apply only to real estate receiverships or apply more broadly to include other types of property, whether it should exclude owner-occupied premises, and whether an act would be the exclusive method for receivership of mortgaged real estate or merely supplement a court’s general equity jurisdiction and powers.
  2. Appointment of a Receiver. This includes grounds for appointment, whether appointment is discretionary or “by right,” and who has standing to seek appointment.
  3. Qualifications of a Receiver. This includes the determination of who may serve as a receiver, whether a surety bond would be required, and how courts would set the amount of any such bond.
  4. Powers of Receivers. Powers may include the operation, maintenance, leasing, and sale of mortgaged property, engaging professionals, and hiring employees. The Study Committee also will consider whether a model or form order outlining potential powers would have merit.
  5. Receivership Procedure/Operation. This includes the process for appointment and ex parte appointment, procedural and ministerial duties, avoidance powers, claims procedures and distribution, compensation, and termination or discharge of the receiver.
  6. Legal Status of a Receiver. This includes how a receiver’s fiduciary obligation to various parties intersects with her role as an officer of the court and the extent to which the receiver may enjoy procedural protections or immunity from suit.
  7. Relationship with Other Law. This includes questions related to the relationship both with the law governing equitable receivers and with existing commercial law.

Per a subsequent charge from the ULC Scope and Program Committee at the ULC’s Midyear Meeting, the Study Committee will continue to research and develop these issues and weigh any additional matters that might merit inclusion. The Study Committee also will reach out to interested and potentially affected stakeholders during the spring and early summer of 2012 to seek advice and input on the specific issue areas raised and on the overall feasibility and desirability of any drafting project—whether a new act would benefit states and practitioners, advance the law in this area, and be likely to gain widespread acceptance and adoption. The goal of the Study Committee will be to make a recommendation to the Scope and Program Committee at the ULC’s 2012 Annual Meeting in July about whether a Drafting Committee on this topic should be formed and begin working.

If you are interested in further information or more detail on the work of the Study Committee on Appointment and Powers of Real Estate Receivers, please contact Thomas Hemmendinger, chair of the Study Committee, at themmendinger@brcsm.com, or Kieran Marion at kmarion@uniformlaws.org.

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