Receiverships: An Effective Collection Option
Sometimes, when circumstances prevent collecting delinquent assessments from owners by more traditional methods, a receivership may assist the association in getting paid. Further, even if other collection options are available, a receivership may help you receive your assessments more quickly.
A receivership is started by filing a lawsuit in County or District court. Unlike other lawsuits, the court will normally grant our request for a receivership and appoint a receiver without first scheduling and conducting a trial or court hearing.
A receiver is an independent third party, unrelated to the Association or the homeowner, appointed by a court to take over possession and control of the property. In legal parlance, the receiver is an officer of the court, and answers to the court. However, being an officer of the court does not mean that the receiver is part of the court system. Typically, a receiver is a person who has experience in managing and operating real property, oftentimes a real estate broker.
The receiver, once appointed, will make reasonable efforts to rent the property. It is possible that the property can only be made habitable following the completion of repairs. Oftentimes, it is not possible to determine whether repairs are necessary until after a receiver has been appointed and has accessed the inside of the property to determine its condition.
Once the property is made habitable, a receiver is normally able to locate a tenant quickly by setting rent slightly below the average market value in the area. If the property is already rented when the receiver takes possession, the receiver is typically able to collect rent from the existing tenant in the property that would otherwise have been paid to the owner.
Once rented, the monies collected are applied as follows: first to pay or reimburse the receiver for his fees; second to reimburse the receiver for any costs in getting the property in habitable condition; third to reimburse the association for attorneys fees and costs in having the receiver appointed; finally, to the association to pay delinquent assessments, late charges, interest and other fees.
The association is still responsible for payment of the receiver’s fees, attorneys fees and costs and other expenses incurred in the event that: (a) the receiver is unable to rent the property; (b) a homeowner occupies the property prior to the receiver finding a suitable tenant; or (c) the association does not want to pay for repairs to make a property habitable.
Factors to consider before having a receiver appointed include the following:
- whether the property is vacant or occupied by a non-homeowner
- the condition of the property
- the amount owed to the association
- whether one or more of the homeowners have filed for bankruptcy
- the cost of appointing the receiver, including the receiver’s fees, attorneys fees and costs;
- whether the court will require service of process on the owner before appointing the receiver, and how difficult it will be to obtain service of process;
- whether the receiver will need to incur any expenses to make the property habitable;
- the amount of rent that the receiver thinks the property can be leased for, usually on a short term basis; and
- whether the property is currently in foreclosure by the first mortgage holder - many times, if the property is in foreclosure, the amount of rent that a receiver can collect over the short period of time that the receiver can rent the property will not be enough to offset the cost of having the receiver appointed.
If your association would like to commence a receivership lawsuit or you have any additional questions related to the receivership process, please contact one of our attorneys.