How Is a Rent and Profits (Real Estate) Receivership Case Operated?

Several specific duties are outlined and required of a rents and profits receiver, and these are typically included in the operating clauses of the form order issued by the granting court.  Of course, there are some challenges that can be expected while carrying out these duties as well.

First, the receiver must take possession of the property at issue and collect all pertinent documents, records and leases (including on-site equipment leases).  Bank account information of the defendants should be gathered and overseen, and any security deposits paid by tenants are acquired.

Next, the receiver will obtain the defendant’s tax identification number (TIN) if needed, serve a demand letter on the defendant and current operator, and give notice to any and all tenants regarding the receivership.

Proper property management and/or financial controls are also implemented by a receiver.  The receiver will need to collect rental income from the property’s tenants, open bank accounts for the deposit of these funds and pay for necessary expenses, and verify or obtain insurance on the property.

If the defendant has the information regarding insurance, the receiver can request these records, or verify insurance details with the lender. If insurance does exist, the agent must add the receiver as additional insured party; if no insurance is evident, a new policy should be secured by the receiver.

Locks may need to be changed, and an inventory of the property must be prepared and filed with the court.  Empty buildings may be leased out by the receiver, but consent must be obtained from the court for any leases exceeding one year or more.

Monthly accounting reports will be submitted to all parties involved in the litigation – the plaintiff and defendant, as well as the court, depending on what requirements exist in the local rules of the court.  Employment decisions must also be made by the receiver.  Existing employees at the property will be screened, but may be terminated and new personnel hired to take their place.  Additional personnel may be needed to conduct and administer the receivership, including accounting professionals or property managers.

Other challenges faced by a receiver include the need to remedy health code violations and to cure deferred maintenance, with court approval.  In addition, in residential properties, the existence of mold and asbestos may create the potential for liability and the receiver must employ legal remediation methods to abate these potentially dangerous conditions. 

 

 



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