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Should I Seek A Receiver of Rents in My Foreclosure Action?

by Lucas Rocklin

October 31, 2019

Contested foreclosure actions in Connecticut can be protracted, taking more than a year to complete. If there are tenants in the property being foreclosed (e.g. commercial building, multi-tenant apartment), it is common that rental income is being generated from the property, tenant issues arise (including lease and evictions matters), property maintenance and repairs are required, and real estate taxes and utilities need to be paid. Absent a receiver of rents being appointed, the mortgagor remains in possession and control of the property, including over the rental income generated from the property. For these reasons, the foreclosing party should consider seeking a receiver of rents to take possession and control of the property during the foreclosure.

Role and Benefit of a Receiver

A receiver of rents is a court appointed agent who (for a fee) preserves and protects the property during the foreclosure. The receiver collects the property rental income, can be empowered to manage the property (maintain the property, pay taxes, insurance, utilities, enter into new leases, and commence eviction actions against defaulted tenants), and holds excess proceeds to satisfy the deficiency owed to the plaintiff post foreclosure.

A Receiver is An Officer of the Court

A receiver is an agent of the court and not the foreclosing plaintiff. So, although a receiver takes possession and control of the property away from the mortgagor, it does not vest control of the property in the foreclosing plaintiff. The funds collected by the receiver are legally in the possession of the court, subject to the court’s disposition. Only when there is a deficiency (when the foreclosing party recovers less than the full amount of its debt after completing the foreclosure), may the court direct that the receiver disburse income to the plaintiff to satisfy the deficiency.

Procedure to Appoint a Receiver

The authority and procedure to seek the appointment of a receiver is established by Connecticut case law and Practice Book Sections §§ 21-19 through 21-24. In most cases, the foreclosing party files a motion Page 2 of 2 Neubert, Pepe & Monteith, P.C. | 195 Church Street, 13th Floor | New Haven, CT 06510 tel 203.821.2000 | fax 203.821.2009 | npmlaw.com with the court, with notice provided to the mortgagor and all other parties to the foreclosure. The foreclosing party selects the receiver, who is often a professional property manager.

The court considers several factors when deciding to appoint a receiver, including: (1) whether waste or loss is occurring at the property (e.g. failure to maintain the property, mismanagement, nonpayment of taxes); (2) whether the foreclosing party is expected to recover less than the full amount of its debt after completing the foreclosure, and (3) whether the loan documents permit the appointment of a receiver upon the mortgagor’s loan default. At the time of appointment, the receiver is required to file a bond with the court, typically set by multiplying the gross monthly rent by the number of months expected until the foreclosure is completed. The receiver’s powers and duties are determined by the court and include an obligation that the receiver file regular accounting reports. A discharge of the receiver can be sought at any time, and in most cases, this is done by the receiver at the end of the foreclosure.

Conclusion

The foreclosing party should consider seeking a receiver of rents when there are tenants in the property being foreclosed. This is because a receiver takes possession and control of the property away from the mortgagor, who would otherwise remain in custody of the property, collecting the rental income, while often not maintaining or paying real estate taxes for the property.

Disclaimer: This article is for educational purposes only and to give you a general understanding of the law, not to provide specific legal advice. No attorney-client relationship exists by reading this article. This article should not be used as a substitute for legal advice from a licensed professional attorney in your state.


Lucas B. Rocklin collections bankruptcy foreclosures attorney in New Haven CT
Lucas B. Rocklin

Lucas B. Rocklin is a creditor rights attorney. He has extensive experience in representing financial institutions and creditors in workout and litigation matters (commercial and consumer) including collections, foreclosures, bankruptcy and landlord-tenant litigation. Attorney Rocklin also practices labor law including collective bargaining agreement negotiations and arbitrations.