Any legal matter involving disputed assets can get complicated quickly—particularly when it involves the ownership, use, occupancy, or financial benefit associated with a jointly owned property. In such circumstances, a court-appointed party such as a Special Real Estate Commissioner or Special Master, Receiver, or neutral broker with specific real estate expertise can deliver a faster, less contentious, and cost-effective resolution for attorneys as well as their clients.
While receivership, divorce and family law, bankruptcy, and probate are vastly different from a legal perspective, the common thread with regard to real estate dispute resolution is the use of court-supervised sales. In most instances, each of these legal proceedings involves a court order or other court-supervised proceeding that allows the receiver, Special Real Estate Commissioner, bankruptcy trustee, or fiduciary to sell real estate assets.
The court-appointed expert is responsible for understanding the court’s expectations; determining what the parties want to achieve and/ or what the court order requires; identifying potential buyers and procuring their interest; and valuing, managing and selling the property or properties. For many transactions, the courtauthorized expert also must be prepared for the inquiry of the judge—which means presenting all relevant information and history regarding the valuation, marketing, management and contract-negotiation process.
The following is a brief summary of the types of neutral real estate experts who can be appointed and the most common cases in which they’re applicable.
When there has been a monetary or other default in loan documents and/or a dispute among parties, a receiver is a court-appointed officer charged with taking possession of and protecting assets as set forth in A.R.S. § 12-1242 and Rule 66, Arizona Rules of Civil Procedure. As a result, receivership can be used by anyone who needs to level the playing field, whether business litigators, divorce attorneys or probate litigators.
In brief, the receiver is responsible for performing financial and physical forensics/ due diligence to understand the assets and liabilities of the receivership estate; assessing the risks and the rewards; and developing a stabilization, turnaround and/or disposition strategy.
Where there are real estate assets within a receivership estate, ideally the real estate assets should be sold while a receivership action is pending. This allows the receiver to stabilize the asset, create buzz (since it’s off-market or premarket), negotiate more favorable contracts and leases, and create a solid due-diligence package. It also can enable a lender to avoid liability issues arising from potential environmental, occupancy, and operating business issues, and facilitate an expedited sale with court oversight and approval.
It’s important to note that while Arizona has a receivership statute, we do not yet have a wide body of case law. Nevertheless, Arizona courts will look to other jurisdictions for case law as precedent-setting in this area.
Special Real Estate Commissioner/ Special Master
In divorce and family law cases, Special Real Estate Commissioners are commonly used to value and sell property where the parties cannot otherwise agree on how to proceed with real estate assets that are a part of the community assets. A Special Real Estate Commissioner is a licensed real estate broker responsible for initiating and completing the sale of real property. Governed by Rule 95G of the Arizona Rules of Family Law Procedure implemented Jan. 1, 2006, a Special Real Estate Commissioner assists the parties with disposition of community real property when the parties are otherwise unable to agree on such issues.
A Special Real Estate Commissioner also can be used in contested estates in which beneficiaries cannot agree on the disposition/ distribution of assets, or in the case of a property that cannot be partitioned without prejudice to the owners and that cannot conveniently be allotted to any one party. (The method of sale is governed by the authority of A.R.S. § 14-3911, Partition for the Purpose of Distribution.)
Finally, a Special Real Estate Commissioner can be used to resolve partition disputes (governing authority A.R.S. § 12- 1218), when a property held by co-tenants (e.g., joint tenants, tenants -in-common or community property) is incapable of fair division, sale, or distribution of proceeds. In some cases, dividing and selling the property might depreciate the value (or be physically impossible, such as an income-producing property or single-family home), or the parties disagree on whether it should be sold or managed. In such cases, the Special Commissioner will be directed to sell the property and return the proceeds into court to be divided between the parties according to their respective interests— and after payment of any mortgages, liens, commissions and escrow fees.
As far as process, a standard order will require the party in possession to contact the Special Commissioner within 10 days, at which point the marketing/valuation/ listing process begins. Special orders may include provisions about access, showing times, reporting intervals, short sales/ foreclosures, and other details.
Note that in cases where there is an operating business involved (e.g., hotels, ministorage businesses, apartments, shopping centers, gas stations), the appropriate route is to appoint a Special Master with Receiver authority who assumes control over the bank accounts and financials, and helps manage the properties as well as addressing any health and safety concerns. The goal, as above, is to create a baseline understanding and equitable understanding between all parties about operations and financials.
In bankruptcy matters, brokers may be court appointed to sell property. Typically, the bankruptcy trustee or a debtor-in-possession will hire a real estate broker, subject to Bankruptcy Court approval, to market and sell the asset in order to pay the secured creditors in full and make a distribution to unsecured creditors. In some instances, a trustee or debtor can sell real estate assets free and clear of liens, even though a lender is not being paid in full. The trustee also can sell co-owned property, where a co-owner is not in bankruptcy—which can be a very powerful tool.
Common Goal: Maximizing Value of Real Estate Assets
Although each type of court-supervised sale has its own specific steps, the common element is a focus on limiting liability for the various parties while maximizing the value of the real estate assets at issue: i.e., achieving highest/best pricing within the established timeline.
Court appointments don’t necessarily require liquidation of the disputed property. For instance, a skilled Receiver may rehabilitate an asset and its systems to the point that business partners, spouses or beneficiaries can engage in equitable settlement negotiations, which is tantamount to an infor-mal mediation. When a sale does occur, it should be as-is, where-is, without representation and warranties, and subject to court approval/oversight (which may include higher/better bidders at court approval, such as in bankruptcy and fiduciary proceedings).
While real property is not the only aspect of legal disputes, it is often one of the most contentious from a financial and even emotional perspective. Court-ordered sales are not as simple as listing and negotiating a property on the open market, given the numerous rules, regulations and checkpoints in place to protect all parties. For that reason, enlisting an expert with real estate acumen as well as experience in adversarial/ litigious environments can be a significant benefit.
Compared to extended litigation, the use of a Special Real Estate Commissioner or Special Master, Receiver or neutral broker can often be less costly and complicated—as well as more expedient—for attorneys (and their clients) seeking equitable resolution in disputes that involve real estate.