The law is always changing. Sometimes changes in the law result from new cases or new statutes. However, sometimes the law changes in reaction to the mood of the country. At present, I believe that that the law may be changing due to a growing trend by the courts, especially in “outlying” courts not located in larger cities, to distrust lenders (including commercial real property lenders). In the case of assignment of rents receivers, commercial real property lenders should be well aware that many courts are strictly applying well established (i.e. old) case law making it more difficult for commercial real property lenders to obtain the appointment of assignment of rents receivers even in cases where the loan is default, despite language to the contrary found in the lenders’ deeds of trust. As a result of this trend, I suggest that lenders re-evaluate when a receiver should be sought and how the motion for the appointment of the receiver should be prepared.
An “assignment of rents receiver” is a receiver whose purpose is to collect the rent and other income from commercial real property. The receiver is typically sought by a commercial real property lender after the loan that is secured by a deed of trust on the property is in default. The term “assignment of rents receiver” refers to the fact that the deed of trust or other loan document typically contains a provision in the assignment of rents section of the document, providing for the appointment of the receiver to collect the rents and other income from the lender’s real property collateral upon a default in the loan.
Because the loan documents expressly provide for the appointment of a receiver upon default, lenders often summarily prepare the motion for the appointment of the receiver, limiting their argument in the motion concerning why the receiver should be appointed to the fact that the loan is in default. Although this may have consistently worked in the past, many courts are now demanding more. The appointment of a receiver is an equitable remedy. What this means is that when reviewing a motion for the appointment of a receiver, courts are not limited to the provisions of documents. Instead, courts have broad discretion to rule on receivership motions based on their perception of what is fair, even if the loan documents not only state that the appointment of a receiver is warranted but also that the borrower consents to the appointment of the receiver.
In order to defeat this growing trend, lenders must become more creative in their receivership motions. The appointment of a receiver is viewed by the courts as a “drastic remedy”, since the receiver is not only taking the income from the real property, but he or she is ousting the borrower from the management and control of the real property that the borrower continues to own. Therefore, in preparing the receivership motions, lenders must establish not merely that the loan is in default, but that the appointment of a receiver is critical and that no other remedy, such as injunctive relief, will provide the lender with adequate protection from harm. With more commercial real property loans maturing this year and next, simply relying on what was successful in the past is no longer sufficient.
