A court-appointed receiver can play a pivotal role in the successful resolution for of a defaulted loan, or where there is litigation surrounding disputed property or jointly-owned assets and businesses. A major factor determining the outcome of a matter involving a receiver is whether or not the right court-appointed receiver was chosen for the job. It is important that the right choice be made because, in addition to an understanding of the laws and statutes governing receivership and real estate, receivers need to bring with them a wealth of experience and knowledge to support their efforts to bring about a timely resolution for the property and/or business in receivership.
Before diving into the specifics around receivership appointments, here is a brief overview of the Arizona statutes that define court-appointed receivership.
Statutes Governing Arizona Receivers
Receivership is an equitable remedy allowing a court to oversee the orderly management and disposition of property subject to a lawsuit, including loan defaults, business divorces, family law matters, probate matters or other matters involving lenders or jointly-owned properties. Although the remedy is not new, there is no standard set of receivership rules and the courts of different states have applied widely varying standards.
The United States, where the use of receivership appointments are common, tend to have well-conceived legislation outlining their roles, as well as a wealth of case law to show how receivership plays out in real life. California and New Mexico, for instance, where receivership is common, draw from a wealth large body of statutory guidance to outline the powers of receivers.
Many believe that there is a need for uniformity, and proponents of court-ordered receivership have developed the Uniform Commercial Real Estate Receivership Act, which applies to receiverships involving commercial real estate, and provides a standard set of rules for courts to apply. It is thought that the adoption of this Act will result in greater predictability for litigants, lenders, and other parties doing business with a company or property subject to receivership. Utah was the first state to adopt the Uniform Act, and Nevada, Michigan, Maryland, and Oklahoma are considering adopting the same policy.
In Arizona, receivership is governed by Arizona Revised Statutes § 12-1241 and 12-1242. They state that an individual or their attorney may petition the court for the appointment of a receiver. While the adverse party “may file counter-affidavits,” the court gives the receiver the authority to “restrain the adverse party from removing, secreting, or otherwise disposing of the property” to deceive or injure the applicant. Preservation and protection of the property or asset is one of a receiver’s most important tasks.
Rents and Profits (Real Estate) Receiverships
There are a variety of different types of real estate assets, each requiring different management, operations, valuation, and accounting expertise, as well as unique marketing strategies and tactics. In general, receiverships involving real property assets are called rents and profits receiverships and usually involve income-producing properties. These asset classes may include, office, industrial, retail, multi-family, mini-storage, single family home portfolios, hotels, rv parks, mobile home parks, among others. Each of these asset classes requires specific knowledge and expertise to navigate. Before requesting the appointment of a receiver, make sure the proposed receiver has specific knowledge in the asset class that is the subject of the potential receivership.
Office/Commercial. Acting as a court-appointed receiver for an office building requires continual interface with tenants, and the public, ensuring that all health and safety related concerns are addressed. Additionally, rent collection, regular maintenance, vendor interface and management, accounting systems to pay invoices and receive revenue, and banking relationships are essential to the operation of office buildings.
Industrial. Is your court-appointed receiver prepared to assume temporary control of a distribution warehouse or chemicals processing plant? For the industrial sector, it is imperative that receivers have the necessary background and experience to navigate the complex regulatory environment for large-scale industry and are familiar with environmental due diligence and management programs, along with banking, accounting management, and maintenance functions.
Multifamily. Multi-family assets include apartment complexes, with numerous occupants and their guests on premises 24/7. These assets can be very difficult to manage, and oftentimes require on-site management and leasing personnel. Health- and safety-related concerns must be addressed continually. A receiver with deep experience in apartment management can prove irreplaceable in helping to address and resolve issues associated with the property, along with rent collection, regular maintenance programs, vendor interface, financial reporting, and other duties.
Hotels. Hotels are one of the most complicated assets. It may be helpful to understand them as truly operating businesses, which happen to be housed within a real estate asset. Some of the areas within a hotel that need attention include the hotel reservation system, food operations, and liquor licenses. Not to mention daily cleaning services and staff. Make sure your receiver has the requisite experience to conduct as smooth a takeover as possible and ensure that the asset’s value does not diminish.
Mobile Home Parks. As with multifamily receivership, court-appointed receivers handling mobile home park receiverships, should know how to collect rent, evict parties who are not fulfilling their obligations, run community facilities, manage and maintain the premises, along with producing financial statements and interfacing with bankers.
Special Use. Schools and arts facilities qualify as “special use” facilities. A receiver may be called upon to operate a school on a short-term basis. This may require interfacing with charter school boards, private school boards or other regulatory bodies. A school receiver must have a team of operators and educators on his or her team to ensure that the school has continuity in its operations. In other cases, a receiver may not need to operate a school but will need to terminate operations and do so by complying with the various regulatory entities. They will then manage the property, value, and potentially sell the assets to another school operator, or reposition the asset for other use. Familiarity in the valuation of schools as well as successful school operators and their ability to achieve licensing needed to operate is essential.
Make the Right Choice
Does your proposed court-appointed receiver have the ability to act as a neutral third party while operating a property and/or business, including functions such as tenant, banking, vendor, and regulatory agency interface? R.O.I. Properties has extensive experience, having acted as court-appointed receivers in over 100 cases, totaling more than $350 million in disputed assets.