It is relatively common in commercial mortgage foreclosure cases for the mortgagee to seek the appointment of a receiver during the pending lawsuit. If the loan documents provide for a receiver and the plaintiff can meet the legal standard (generally, by showing that a default has occurred together with other factors such as diminishing property value, unpaid real estate taxes, and lost rental income) Florida courts will generally grant a motion to appoint a receiver. The order will recite, in varying degrees of detail, the powers that a receiver has with respect to the foreclosure property. Mortgages and other loan documents often recite broad powers which often form the basis of the powers recited in the order. In most cases, the receiver will have the power and authority to take possession of, collect rents from, protect, preserve, maintain and operate the property during the foreclosure action.
During the recent wave of commercial foreclosures, plaintiffs have frequently sought broader powers for receivers including, particularly, the power to sell and dispose of the property. I have seen instances where this specific language was included in the final order appointing the receiver, sometimes with court approval of a specific sales contract and, other times with no further court involvement. While some practitioners have taken the position that the inclusion of this language gives the receiver the power to sell, there are few, if any, cases that broadly support that position. Further, most title insurance underwriters that I have surveyed indicate a reluctance, if not unwillingness, to insure title derived from a receiver, regardless of the language of the order appointing the receiver. From a practical standpoint, this has probably served as a chilling effect on receivers’ attempts to sell foreclosure property.
Recently, Florida’s Second District Court of Appeals provided additional insight on this issue in the case of MB Plaza, LLC v. Wells Fargo Bank, Nat. Ass’n, 72 So. 3d 205 (Fla. 2d DCA 2011). In that case, the Court upheld the decision to appoint the receiver (meaning that the plaintiff met its burden to get the receiver appointed) but overturned the trial court’s decision based upon the extensive rights and powers granted to the receiver in the order that was entered. As an aside, I would point out that this opinion is favorable to lenders from the standpoint of its discussion of the standard for obtaining a receiver. However, let’s focus on the power of sale issue.
The Second DCA noted that the order was nine pages long and focused on the broad powers that were granted to the receiver and the fact that many of those powers were not supported by language in the mortgage or other loan documents or in the record on appeal. In fact, the Court found it “…troubling that the order appears to give the receiver more unsupervised power than even that given to a trustee in bankruptcy.” How, then, did the Court address the issue of power of sale? My conclusion is that this case does not expressly prohibit property sale by receivers but it does give a strong indication of some factors that would need to be present. First, it seems to support the position that the mortgage or other loan documents should expressly provide for a receiver having the power to market and sell the property. It might be a good idea if the mortgage also included the power to negotiate and enter into contracts and, specifically, to convey the property by deed. I think the case also supports the proposition that the receiver should be required to obtain court approval both to enter into a contract as well as close a contract and convey title. Finally, I read the case as implying that the mortgagor’s consent would be required which, if obtained, would likely satisfy a title underwriter.