What To Expect When A Receiver Takes Over A Troubled Property

September 2011

Early in any judicial foreclosure action, the lender that brought the action will often ask the court to appoint a receiver to take control of the property away from the borrower. Appointment of a receiver represents a crucial step in the foreclosure process. It immediately changes the dynamics and the relationship between borrower and lender. Before the era of nonrecourse carve-outs for voluntary bankruptcies, appointment of a receiver often drove a borrower to file bankruptcy almost immediately, in the hope that this might keep the lender and the receiver at bay.

Because a receivership typically lasts as long as a foreclosure, it can potentially continue for several years, as the borrower and lender try to resolve their claims about the property, or try to delay the resolution of those claims. While the foreclosure action wends its way through the courts, the presence of a receiver is intended to protect the lender from the risk that the borrower will mismanage the property or misappropriate revenue. The receivership is also intended to assure that the property does not deteriorate under the control of a distracted and penniless borrower.

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