Government of the District of Columbia
UNIFORM LAW COMMISSION
September 19, 2023
The Honorable Phil Mendelson
Chairman
Council of the District of Columbia
The John A. Wilson Building,
1350 Pennsylvania Avenue, NW
Washington, DC 20004
RE: Request for introduction of the Uniform Commercial Real Estate Receivership Act
of 2023.
Dear Chairman Mendelson:
Pursuant to Rule 401(b)(1) of the Rules of Organization and Procedure for the
Council, this is to request, on behalf of the District of Columbia Uniform Law
Commission, that you introduce the proposed “Uniform Commercial Real Estate
Receivership Act of 2023.”
A receiver is someone appointed by a court to take possession of another person’s
property and manage it. Receivers of commercial real estate are used in a variety of
situations, including: (1) when the property is the subject of a lawsuit and its value must
be preserved while the issue is litigated; (2) when the property includes an operating
business, to sell its assets in an orderly manner and maximize the return for its owners
and/or creditors; and (3) when requested by a creditor, to collect, preserve, and distribute
the property of an insolvent or defaulting debtor.
Presently, receivership law in the District is made by judges on a case-by-case
basis. Every receivership case is unique, and in every such case, there are lingering
questions about whether a broad appointment order from a court of equity can override
other laws governing liens, debt-collection remedies, and foreclosure procedures.
The Uniform Commercial Real Estate Receivership Act is designed to fill this
legal vacuum and, thus, to reduce litigation costs regarding receiverships. The Act
provides comprehensive rules regarding the appointment and powers of commercial real
estate receivers. In particular, the Act authorizes a receiver to use, sell, or lease
receivership property in the ordinary course of business, and to take such actions outside
the ordinary course of business with court approval. The Act thus allows a mortgagee, 2
through a receiver, to assume control of the mortgaged property, operate the property as a
going concern, and sell the property in an arms-length transaction. In addition, the Act
allows a receiver to conduct a unified sale of encumbered real estate and related personal
property, such as equipment, a franchise agreement, and intellectual property. This
process will likely yield a higher recovery than a distressed foreclosure sale would,
thereby benefiting both the mortgagee and the owner.
The Uniform Commercial Real Estate Receivership Act was completed by the
National Conference of Commissioners on Uniform State Laws in 2015 and has been
enacted, thus far, in 12 states, including Maryland.
A proposed “Uniform Commercial Real Estate Receivership Act of 2023.” is
being filed with this letter. In addition, the following documents have been filed: (1) a
summary of the Uniform Act; (2) a statement as to why the Uniform Act should be
adopted; and (3) the official version of the Uniform Commercial Real Estate
Receivership Act with comments.
I would be pleased to answer any questions and to provide any additional
information requested.
Sincerely,
James C. McKay, Jr.
Chair
D.C. Uniform Law Commission
cc: Uniform Law Commissioners 2
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~Phil Mendelson at the request of the
District
of Columbia Uniform Law Commission
A BILL
14 IN THE COUNCIL OF THE DISTRICT OF COLUMBIA
15
16 To enact the Uniform Commercial Real Estate Receivership Act to establish uniform standards
17 under which a court may appoint a receiver; to give any interested parties the right to
18 notice and an opportunity for a hearing before a court issues an order under this act; to
19 require a receiver to be independent; to give a receiver the status of a lien creditor with
20 respect to receivership property, subject to pre-existing perfected security interests; to set
21 forth the receiver's presumptive powers and those the receiver may exercise only with
22 court approval; to set forth the duties of both the receiver and the owner of receivership
23 property; to authorize receivers to use or sell receivership property in the ordinary course
24 of business, but require that they obtain get court approval for uses or transfers of
25 property outside the ordinary course of business; and for other purposes.
26
27 BE IT ENACTED BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, That this
28 act may be cited as the "Uniform Commercial Real Estate Receivership Act of 2023".
29 Sec. 1. Short title.
30 This act may be cited as the Uniform Commercial Real Estate Receivership Act.
31 Sec. 2. Definitions.
32 In this act:
33 ( 1) "Affiliate" means:
34 (A) With respect to an individual:
35 (i) A companion of the individual;
36 (ii) A lineal ancestor or descendant, whether by blood or adoption, of: 2
(I) The individual; or 37
(II) A companion of the individual; 38
(iii) A companion of an ancestor or descendant described in clause (ii); 39
(iv) A sibling, aunt, uncle, great aunt, great uncle, first cousin, niece, 40
nephew, grandniece, or grandnephew of the individual, whether related by the whole or the half 41
blood or adoption, or a companion of any of them; or 42
(v) Any other individual occupying the residence of the individual; and 43
(B) With respect to a person other than an individual: 44
(i) Another person that directly or indirectly controls, is controlled by, or 45
is under common control with the person; 46
(ii) An officer, director, manager, member, partner, employee, or trustee or 47
other fiduciary of the person; or 48
(iii) A companion of, or an individual occupying the residence of, an 49
individual described in clause (i) or (ii). 50
(2) “Companion” means: 51
(A) The spouse of an individual; 52
(B) The domestic partner of an individual; or 53
(C) Another individual in a civil union with an individual. 54
(3) “District” means the District of Columbia. 55
(4) “Executory contract” means a contract, including a lease, under which each party has 56
an unperformed obligation and the failure of a party to complete performance would constitute a 57
material breach. 58 3
(5) “Governmental unit” means an office, department, division, bureau, board, 59
commission, or other agency of the District or a subdivision of the District. 60
(6) “Lien” means an interest in property which secures payment or performance of an 61
obligation. 62
(7) “Mortgage” means a record, however denominated, that creates or provides for a 63
consensual lien on real property or rents, even if it also creates or provides for a lien on personal 64
property. 65
(8) “Mortgagee” means a person entitled to enforce an obligation secured by a mortgage. 66
(9) “Mortgagor” means a person that grants a mortgage or a successor in ownership of 67
the real property described in the mortgage. 68
(10) “Owner” means the person for whose property a receiver is appointed. 69
(11) “Person” means an individual, estate, business or nonprofit entity, public 70
corporation, government or governmental subdivision, agency, or instrumentality, or other legal 71
entity. 72
(12) “Proceeds” means the following property: 73
(A) Whatever is acquired on the sale, lease, license, exchange, or other disposition 74
of receivership property; 75
(B) Whatever is collected on, or distributed on account of, receivership property; 76
(C) Rights arising out of receivership property; 77
(D) To the extent of the value of receivership property, claims arising out of the 78
loss, nonconformity, or interference with the use of, defects or infringement of rights in, or 79
damage to the property; or 80 4
(E) To the extent of the value of receivership property and to the extent payable to 81
the owner or mortgagee, insurance payable by reason of the loss or nonconformity of, defects or 82
infringement of rights in, or damage to the property. 83
(13) “Property” means all of a person’s right, title, and interest, both legal and equitable, 84
in real and personal property, tangible and intangible, wherever located and however acquired. 85
The term includes proceeds, products, offspring, rents, or profits of or from the property. 86
(14) “Receiver” means a person appointed by the Superior Court as the court’s agent, 87
and subject to the court’s direction, to take possession of, manage, and, if authorized by this act 88
or court order, transfer, sell, lease, license, exchange, collect, or otherwise dispose of 89
receivership property. 90
(15) “Receivership” means a proceeding in which a receiver is appointed. 91
(16) “Receivership property” means the property of an owner which is described in the 92
order appointing a receiver or a subsequent order. The term includes any proceeds, products, 93
offspring, rents, or profits of or from the property. 94
(17) “Record”, used as a noun, means information that is inscribed on a tangible medium 95
or that is stored on an electronic or other medium and is retrievable in perceivable form. 96
(18) “Rents” means: 97
(A) Sums payable for the right to possess or occupy, or for the actual possession 98
or occupation of, real property of another person; 99
(B) Sums payable to a mortgagor under a policy of rental-interruption insurance 100
covering real property; 101
(C) Claims arising out of a default in the payment of sums payable for the right to 102
possess or occupy real property of another person; 103 5
(D) Sums payable to terminate an agreement to possess or occupy real property of 104
another person; 105
(E) Sums payable to a mortgagor for payment or reimbursement of expenses 106
incurred in owning, operating, and maintaining real property or constructing or installing 107
improvements on real property; or 108
(F) Other sums payable under an agreement relating to the real property of 109
another person which constitute rents under law of the District other than this act. 110
(19) “Secured obligation” means an obligation the payment or performance of which is 111
secured by a security agreement. 112
(20) “Security agreement” means an agreement that creates or provides for a lien. 113
(21) “Sign” means, with present intent to authenticate or adopt a record: 114
(A) To execute or adopt a tangible symbol; or 115
(B) To attach to or logically associate with the record an electronic sound, 116
symbol, or process. 117
(22) “State” means a state of the United States, the District of Columbia, Puerto Rico, 118
the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction 119
of the United States. 120
(23) “Superior Court” means the Superior Court of the District of Columbia. 121
Sec. 3. Notice and opportunity for hearing. 122
(a) Except as otherwise provided in subsection (b), the Superior Court may issue an 123
order under this act only after notice and opportunity for a hearing appropriate in the 124
circumstances. 125
(b) The Superior Court may issue an order under this act: 126 6
(1) Without prior notice if the circumstances require issuance of an order before 127
notice is given; 128
(2) After notice and without a prior hearing if the circumstances require issuance 129
of an order before a hearing is held; or 130
(3) After notice and without a hearing if no interested party timely requests a 131
hearing. 132
Sec. 4. Scope; exclusions. 133
(a) Except as otherwise provided in subsection (b) or (c), this act applies to a 134
receivership for an interest in real property and any personal property related to or used in 135
operating the real property. 136
(b) This act does not apply to a receivership for an interest in real property improved by 137
one to four dwelling units unless: 138
(1) The interest is used for agricultural, commercial, industrial, or mineral-139
extraction purposes, other than incidental uses by an owner occupying the property as the 140
owner’s primary residence; 141
(2) The interest secures an obligation incurred at a time when the property was 142
used or planned for use for agricultural, commercial, industrial, or mineral-extraction purposes; 143
(3) The owner planned or is planning to develop the property into one or more 144
dwelling units to be sold or leased in the ordinary course of the owner’s business; or 145
(4) The owner is collecting or has the right to collect rents or other income from 146
the property from a person other than an affiliate of the owner. 147 7
(c) This act does not apply to a receivership authorized by law of the District other than 148
this act in which the receiver is a governmental unit or an individual acting in an official capacity 149
on behalf of the unit except to the extent provided by the other law. 150
(d) This act does not limit the authority of a court to appoint a receiver under law of the 151
District other than this act. 152
(e) Unless displaced by a particular provision of this act, the principles of law and equity 153
supplement this act. 154
Sec. 5. Power of Superior Court. 155
The Superior Court has exclusive jurisdiction to direct the receiver and determine any 156
controversy related to the receivership or receivership property. 157
Sec. 6. Appointment of receiver. 158
(a) The Superior Court may appoint a receiver: 159
(1) Before judgment, to protect a party that demonstrates an apparent right, title, 160
or interest in real property that is the subject of the action, if the property or its revenue-161
producing potential: 162
(A) Is being subjected to or is in danger of waste, loss, dissipation, or 163
impairment; or 164
(B) Has been or is about to be the subject of a voidable transaction; 165
(2) After judgment: 166
(A) To carry the judgment into effect; or 167
(B) To preserve nonexempt real property pending appeal or when an 168
execution has been returned unsatisfied and the owner refuses to apply the property in 169
satisfaction of the judgment; or 170 8
(3) In an action in which a receiver for real property may be appointed on 171
equitable grounds; or 172
(4) During the time allowed for redemption, to preserve real property sold in an 173
execution or foreclosure sale and secure its rents to the person entitled to the rents. 174
(b) In connection with the foreclosure or other enforcement of a mortgage, the Superior 175
Court may appoint a receiver for the mortgaged property if: 176
(1) Appointment is necessary to protect the property from waste, loss, transfer, 177
dissipation, or impairment; 178
(2) The mortgagor agreed in a signed record to appointment of a receiver on 179
default; 180
(3) The owner agreed, after default and in a signed record, to appointment of a 181
receiver; 182
(4) The property and any other collateral held by the mortgagee are not sufficient 183
to satisfy the secured obligation; 184
(5) The owner fails to turn over to the mortgagee proceeds or rents the mortgagee 185
was entitled to collect; or 186
(6) The holder of a subordinate lien obtains appointment of a receiver for the 187
property. 188
(c) The Superior Court may condition appointment of a receiver without prior notice 189
under section 3(b)(1) or without a prior hearing under section 3(b)(2) on the giving of security by 190
the person seeking the appointment for the payment of damages, reasonable attorney’s fees, and 191
costs incurred or suffered by any person if the court later concludes that the appointment was not 192 9
justified. If the court later concludes that the appointment was justified, the court shall release 193
the security. 194
Sec. 7. Disqualification from appointment as receiver; disclosure of interest. 195
(a) The Superior Court may not appoint a person as receiver unless the person submits to 196
the court a statement under penalty of perjury that the person is not disqualified. 197
(b) Except as otherwise provided in subsection (c), a person is disqualified from 198
appointment as receiver if the person: 199
(1) Is an affiliate of a party; 200
(2) Has an interest materially adverse to an interest of a party; 201
(3) Has a material financial interest in the outcome of the action, other than 202
compensation the Superior Court may allow the receiver; 203
(4) Has a debtor-creditor relationship with a party; or 204
(5) Holds an equity interest in a party, other than a noncontrolling interest in a 205
publicly-traded company. 206
(c) A person is not disqualified from appointment as receiver solely because the person: 207
(1) Was appointed receiver or is owed compensation in an unrelated matter 208
involving a party or was engaged by a party in a matter unrelated to the receivership; 209
(2) Is an individual obligated to a party on a debt that is not in default and was 210
incurred primarily for personal, family, or household purposes; or 211
(3) Maintains with a party a deposit account as defined in D.C. Code § 28:9-212
102(a)(29). 213
(d) A person seeking appointment of a receiver may nominate a person to serve as 214
receiver, but the Superior Court is not bound by the nomination. 215 10
Sec. 8. Receiver’s bond; alternative security. 216
(a) Except as otherwise provided in subsection (b), a receiver shall post with the Superior 217
Court a bond that: 218
(1) Is conditioned on the faithful discharge of the receiver’s duties; 219
(2) Has one or more sureties approved by the court; 220
(3) Is in an amount the court specifies; and 221
(4) Is effective as of the date of the receiver’s appointment. 222
(b) The Superior Court may approve the posting by a receiver with the court of 223
alternative security, such as a letter of credit or deposit of funds. The receiver may not use 224
receivership property as alternative security. Interest that accrues on deposited funds must be 225
paid to the receiver on the receiver’s discharge. 226
(c) The Superior Court may authorize a receiver to act before the receiver posts the bond 227
or alternative security required by this section. 228
(d) A claim against a receiver’s bond or alternative security must be made not later than 229
one year after the date the receiver is discharged. 230
Sec. 9. Status of receiver as lien creditor. 231
On appointment of a receiver, the receiver has the status of a lien creditor under: 232
(1) D.C. Code § 28:9-101 et seq. as to receivership property that is personal property or 233
fixtures; and 234
(2) Section 499 of An Act To establish a code of law for the District of Columbia, 235
approved March 3, 1901, 31 Stat. 1189, Chapter 854; D.C. Code § 42–401) as to receivership 236
property that is real property. 237
Sec. 10. Security agreement covering after-acquired property. 238 11
Except as otherwise provided by law of the District other than this act, property that a 239
receiver or owner acquires after appointment of the receiver is subject to a security agreement 240
entered into before the appointment to the same extent as if the Superior Court had not appointed 241
the receiver. 242
Sec. 11. Collection and turnover of receivership property. 243
(a) Unless the Superior Court orders otherwise, on demand by a receiver: 244
(1) A person that owes a debt that is receivership property and is matured or 245
payable on demand or on order shall pay the debt to or on the order of the receiver, except to the 246
extent the debt is subject to setoff or recoupment; and 247
(2) Subject to subsection (c), a person that has possession, custody, or control of 248
receivership property shall turn the property over to the receiver. 249
(b) A person that has notice of the appointment of a receiver and owes a debt that is 250
receivership property may not satisfy the debt by payment to the owner. 251
(c) If a creditor has possession, custody, or control of receivership property and the 252
validity, perfection, or priority of the creditor’s lien on the property depends on the creditor’s 253
possession, custody, or control, the creditor may retain possession, custody, or control until the 254
court orders adequate protection of the creditor’s lien. 255
(d) Unless a bona fide dispute exists about a receiver’s right to possession, custody, or 256
control of receivership property, the Superior Court may sanction as civil contempt a person’s 257
failure to turn the property over when required by this section. 258
Sec. 12. Powers and duties of receiver. 259
(a) Except as limited by court order or law of the District other than this act, a receiver 260
may: 261 12
(1) Collect, control, manage, conserve, and protect receivership property; 262
(2) Operate a business constituting receivership property, including preservation, 263
use, sale, lease, license, exchange, collection, or disposition of the property in the ordinary 264
course of business; 265
(3) In the ordinary course of business, incur unsecured debt and pay expenses 266
incidental to the receiver’s preservation, use, sale, lease, license, exchange, collection, or 267
disposition of receivership property; 268
(4) Assert a right, claim, cause of action, or defense of the owner which relates to 269
receivership property; 270
(5) Seek and obtain instruction from the Superior Court concerning receivership 271
property, exercise of the receiver’s powers, and performance of the receiver’s duties; 272
(6) On subpoena, compel a person to submit to examination under oath, or to 273
produce and permit inspection and copying of designated records or tangible things, with respect 274
to receivership property or any other matter that may affect administration of the receivership; 275
(7) Engage a professional as provided in section 15; 276
(8) Apply to a court of another state for appointment as ancillary receiver with 277
respect to receivership property located in that state; and 278
(9) Exercise any power conferred by court order, this act, or law of the District 279
other than this act. 280
(b) With the Superior Court’s approval, a receiver may: 281
(1) Incur debt for the use or benefit of receivership property other than in the 282
ordinary course of business; 283
(2) Make improvements to receivership property; 284 13
(3) Use or transfer receivership property other than in the ordinary course of 285
business as provided in section 16; 286
(4) Adopt or reject an executory contract of the owner as provided in section 17; 287
(5) Pay compensation to the receiver as provided in section 21, and to each 288
professional engaged by the receiver as provided in section 15; 289
(6) Recommend allowance or disallowance of a claim of a creditor as provided in 290
section 20; and 291
(7) Make a distribution of receivership property as provided in section 20. 292
(c) A receiver shall: 293
(1) Prepare and retain appropriate business records, including a record of each 294
receipt, disbursement, and disposition of receivership property; 295
(2) Account for receivership property, including the proceeds of a sale, lease, 296
license, exchange, collection, or other disposition of the property; 297
(3) File with the Office of the Recorder of Deeds a copy of the order appointing 298
the receiver and, if a legal description of the real property is not included in the order, the legal 299
description; 300
(4) Disclose to the Superior Court any fact arising during the receivership which 301
would disqualify the receiver under section 7; and 302
(5) Perform any duty imposed by court order, this act, or law of the District other 303
than this act. 304
(d) The powers and duties of a receiver may be expanded, modified, or limited by the 305
Superior Court’s order. 306
Sec. 13. Duties of owner. 307 14
(a) An owner shall: 308
(1) Assist and cooperate with the receiver in the administration of the receivership 309
and the discharge of the receiver’s duties; 310
(2) Preserve and turn over to the receiver all receivership property in the owner’s 311
possession, custody, or control; 312
(3) Identify all records and other information relating to the receivership property, 313
including a password, authorization, or other information needed to obtain or maintain access to 314
or control of the receivership property, and make available to the receiver the records and 315
information in the owner’s possession, custody, or control; 316
(4) On subpoena, submit to examination under oath by the receiver concerning the 317
acts, conduct, property, liabilities, and financial condition of the owner or any matter relating to 318
the receivership property or the receivership; and 319
(5) Perform any duty imposed by court order, this act, or law of the District other 320
than this act. 321
(b) If an owner is a person other than an individual, this section applies to each officer, 322
director, manager, member, partner, trustee, or other person exercising or having the power to 323
exercise control over the affairs of the owner. 324
(c) If a person knowingly fails to perform a duty imposed by this section, the Superior 325
Court may: 326
(1) Award the receiver actual damages caused by the person’s failure, reasonable 327
attorney’s fees, and costs; and 328
(2) Sanction the failure as civil contempt. 329
Sec. 14. Stay; injunction. 330 15
(a) Except as otherwise provided in subsection (d) or ordered by the Superior Court, an 331
order appointing a receiver operates as a stay, applicable to all persons, of an act, action, or 332
proceeding: 333
(1) To obtain possession of, exercise control over, or enforce a judgment against 334
receivership property; and 335
(2) To enforce a lien against receivership property to the extent the lien secures a 336
claim against the owner which arose before entry of the order. 337
(b) Except as otherwise provided in subsection (d), the Superior Court may enjoin an act, 338
action, or proceeding against or relating to receivership property if the injunction is necessary to 339
protect the property or facilitate administration of the receivership. 340
(c) A person whose act, action, or proceeding is stayed or enjoined under this section 341
may apply to the Superior Court for relief from the stay or injunction for cause. 342
(d) An order under subsection (a) or (b) does not operate as a stay or injunction of: 343
(1) An act, action, or proceeding to foreclose or otherwise enforce a mortgage by 344
the person seeking appointment of the receiver; 345
(2) An act, action, or proceeding to perfect, or maintain or continue the perfection 346
of, an interest in receivership property; 347
(3) Commencement or continuation of a criminal proceeding; 348
(4) Commencement or continuation of an action or proceeding, or enforcement of 349
a judgment other than a money judgment in an action or proceeding, by a governmental unit to 350
enforce its police or regulatory power; or 351
(5) Establishment by a governmental unit of a tax liability against the owner or 352
receivership property or an appeal of the liability. 353 16
(e) The Superior Court may void an act that violates a stay or injunction under this 354
section. 355
(f) If a person knowingly violates a stay or injunction under this section, the Superior 356
Court may: 357
(1) Award actual damages caused by the violation, reasonable attorney’s fees, and 358
costs; and 359
(2) Sanction the violation as civil contempt. 360
Sec. 15. Engagement and compensation of professional. 361
(a) With the Superior Court’s approval, a receiver may engage an attorney, accountant, 362
appraiser, auctioneer, broker, or other professional to assist the receiver in performing a duty or 363
exercising a power of the receiver. The receiver shall disclose to the Superior Court: 364
(1) The identity and qualifications of the professional; 365
(2) The scope and nature of the proposed engagement; 366
(3) Any potential conflict of interest; and 367
(4) The proposed compensation. 368
(b) A person is not disqualified from engagement under this section solely because of the 369
person’s engagement by, representation of, or other relationship with the receiver, a creditor, or a 370
party. This act does not prevent the receiver from serving in the receivership as an attorney, 371
accountant, auctioneer, or broker when authorized by law. 372
(c) A receiver or professional engaged under subsection (a) shall file with the Superior 373
Court an itemized statement of the time spent, work performed, and billing rate of each person 374
that performed the work and an itemized list of expenses. The receiver shall pay the amount 375
approved by the court. 376 17
Sec. 16. Use or transfer of receivership property not in ordinary course of business. 377
(a) In this section, “good faith” means honesty in fact and the observance of reasonable 378
commercial standards of fair dealing. 379
(b) With the Superior Court’s approval, a receiver may use receivership property other 380
than in the ordinary course of business. 381
(c) With court approval, a receiver may transfer receivership property other than in the 382
ordinary course of business by sale, lease, license, exchange, or other disposition. Unless the 383
agreement of sale provides otherwise, a sale under this section is free and clear of a lien of the 384
person that obtained appointment of the receiver, any subordinate lien, and any right of 385
redemption but is subject to a senior lien. 386
(d) A lien on receivership property which is extinguished by a transfer under subsection 387
(c) attaches to the proceeds of the transfer with the same validity, perfection, and priority the lien 388
had on the property immediately before the transfer, even if the proceeds are not sufficient to 389
satisfy all obligations secured by the lien. 390
(e) A transfer under subsection (c) may occur by means other than a public auction sale. 391
A creditor holding a valid lien on the property to be transferred may purchase the property and 392
offset against the purchase price part or all of the allowed amount secured by the lien, if the 393
creditor tenders funds sufficient to satisfy in full the reasonable expenses of transfer and the 394
obligation secured by any senior lien extinguished by the transfer. 395
(f) A reversal or modification of an order approving a transfer under subsection (c) does 396
not affect the validity of the transfer to a person that acquired the property in good faith or revive 397
against the person any lien extinguished by the transfer, whether the person knew before the 398 18
transfer of the request for reversal or modification, unless the Superior Court stayed the order 399
before the transfer. 400
Sec. 17. Executory contract. 401
(a) In this section, “timeshare interest” means an interest having a duration of more than 402
three years which grants its holder the right to use and occupy an accommodation, facility, or 403
recreational site, whether improved or not, for a specific period less than a full year during any 404
given year. 405
(b) Except as otherwise provided in subsection (h), with the Superior Court’s approval, a 406
receiver may adopt or reject an executory contract of the owner relating to receivership property. 407
The court may condition the receiver’s adoption and continued performance of the contract on 408
terms appropriate under the circumstances. If the receiver does not request court approval to 409
adopt or reject the contract within a reasonable time after the receiver’s appointment, the receiver 410
is deemed to have rejected the contract. 411
(c) A receiver’s performance of an executory contract before the Superior Court’s 412
approval under subsection (b) of its adoption or rejection is not an adoption of the contract and 413
does not preclude the receiver from seeking approval to reject the contract. 414
(d) A provision in an executory contract which requires or permits a forfeiture, 415
modification, or termination of the contract because of the appointment of a receiver or the 416
financial condition of the owner does not affect a receiver’s power under subsection (b) to adopt 417
the contract. 418
(e) A receiver’s right to possess or use receivership property pursuant to an executory 419
contract terminates on rejection of the contract under subsection (b). Rejection is a breach of the 420 19
contract effective immediately before appointment of the receiver. A claim for damages for 421
rejection of the contract must be submitted by the later of: 422
(1) The time set for submitting a claim in the receivership; or 423
(2) 30 days after the Superior Court approves the rejection. 424
(f) If at the time a receiver is appointed, the owner has the right to assign an executory 425
contract relating to receivership property under law of the District other than this act, the receiver 426
may assign the contract with court approval. 427
(g) If a receiver rejects under subsection (b) an executory contract for the sale of 428
receivership property that is real property in possession of the purchaser or a real-property 429
timeshare interest, the purchaser may: 430
(1) Treat the rejection as a termination of the contract, and in that case the 431
purchaser has a lien on the property for the recovery of any part of the purchase price the 432
purchaser paid; or 433
(2) Retain the purchaser’s right to possession under the contract, and in that case 434
the purchaser shall continue to perform all obligations arising under the contract and may offset 435
any damages caused by nonperformance of an obligation of the owner after the date of the 436
rejection, but the purchaser has no right or claim against other receivership property or the 437
receiver on account of the damages. 438
(h) A receiver may not reject an unexpired lease of real property under which the owner 439
is the landlord if: 440
(1) The tenant occupies the leased premises as the tenant’s primary residence; 441
(2) The receiver was appointed at the request of a person other than a mortgagee; 442
or 443 20
(3) The receiver was appointed at the request of a mortgagee and: 444
(A) The lease is superior to the lien of the mortgage; 445
(B) The tenant has an enforceable agreement with the mortgagee or the 446
holder of a senior lien under which the tenant’s occupancy will not be disturbed as long as the 447
tenant performs its obligations under the lease; 448
(C) The mortgagee has consented to the lease, either in a signed record or 449
by its failure timely to object that the lease violated the mortgage; or 450
(D) The terms of the lease were commercially reasonable at the time the 451
lease was agreed to and the tenant did not know or have reason to know that the lease violated 452
the mortgage. 453
Sec. 18. Defenses and immunities of receiver. 454
(a) A receiver is entitled to all defenses and immunities provided by law of the District 455
other than this act for an act or omission within the scope of the receiver’s appointment. 456
(b) A receiver may be sued personally for an act or omission in administering 457
receivership property only with approval of the court that appointed the receiver. 458
Sec. 19. Interim report of receiver. 459
A receiver may file or, if ordered by the court, shall file an interim report that includes: 460
(1) The activities of the receiver since appointment or a previous report; 461
(2) Receipts and disbursements, including a payment made or proposed to be made to a 462
professional engaged by the receiver; 463
(3) Receipts and dispositions of receivership property; 464
(4) Fees and expenses of the receiver and, if not filed separately, a request for approval 465
of payment of the fees and expenses; and 466 21
(5) Any other information required by the court. 467
Sec. 20. Notice of appointment; claim against receivership; distribution to creditors. 468
(a) Except as otherwise provided in subsection (f), a receiver shall give notice of 469
appointment of the receiver to creditors of the owner by: 470
(1) Deposit for delivery through first-class mail or other commercially reasonable 471
delivery method to the last-known address of each creditor; and 472
(2) Publication as directed by the Superior Court. 473
(b) Except as otherwise provided in subsection (f), the notice required by subsection (a) 474
must specify the date by which each creditor holding a claim against the owner which arose 475
before appointment of the receiver must submit the claim to the receiver. The date specified 476
must be at least 90 days after the later of notice under subsection (a)(1) or last publication under 477
subsection (a)(2). The Superior Court may extend the period for submitting the claim. Unless 478
the court orders otherwise, a claim that is not submitted timely is not entitled to a distribution 479
from the receivership. 480
(c) A claim submitted by a creditor under this section must: 481
(1) State the name and address of the creditor; 482
(2) State the amount and basis of the claim; 483
(3) Identify any property securing the claim; 484
(4) Be signed by the creditor under penalty of perjury; and 485
(5) Include a copy of any record on which the claim is based. 486
(d) An assignment by a creditor of a claim against the owner is effective against the 487
receiver only if the assignee gives timely notice of the assignment to the receiver in a signed 488
record. 489 22
(e) At any time before entry of an order approving a receiver’s final report, the receiver 490
may file with the Superior Court an objection to a claim of a creditor, stating the basis for the 491
objection. The court shall allow or disallow the claim according to law of the District other than 492
this act. 493
(f) If the Superior Court concludes that receivership property is likely to be insufficient 494
to satisfy claims of each creditor holding a perfected lien on the property, the court may order 495
that: 496
(1) The receiver need not give notice under subsection (a) of the appointment to 497
all creditors of the owner, but only such creditors as the court directs; and 498
(2) Unsecured creditors need not submit claims under this section. 499
(g) Subject to section 21: 500
(1) A distribution of receivership property to a creditor holding a perfected lien on 501
the property must be made in accordance with the creditor’s priority under law of the District 502
other than this act; and 503
(2) A distribution of receivership property to a creditor with an allowed unsecured 504
claim must be made as the court directs according to law of the District other than this act. 505
Sec. 21. Fees and expenses. 506
(a) The Superior Court may award a receiver from receivership property the reasonable 507
and necessary fees and expenses of performing the duties of the receiver and exercising the 508
powers of the receiver. 509
(b) The Superior Court may order one or more of the following to pay the reasonable and 510
necessary fees and expenses of the receivership, including reasonable attorney’s fees and costs: 511 23
(1) A person that requested the appointment of the receiver, if the receivership 512
does not produce sufficient funds to pay the fees and expenses; or 513
(2) A person whose conduct justified or would have justified the appointment of 514
the receiver under section 6(a)(1). 515
Sec. 22. Removal of receiver; replacement; termination of receivership. 516
(a) The Superior Court may remove a receiver for cause. 517
(b) The Superior Court shall replace a receiver that dies, resigns, or is removed. 518
(c) If the Superior Court finds that a receiver that resigns or is removed, or the 519
representative of a receiver that is deceased, has accounted fully for and turned over to the 520
successor receiver all receivership property and has filed a report of all receipts and 521
disbursements during the service of the replaced receiver, the replaced receiver is discharged. 522
(d) The Superior Court may discharge a receiver and terminate the court’s administration 523
of the receivership property if the court finds that appointment of the receiver was improvident 524
or that the circumstances no longer warrant continuation of the receivership. If the court finds 525
that the appointment was sought wrongfully or in bad faith, the court may assess against the 526
person that sought the appointment: 527
(1) The fees and expenses of the receivership, including reasonable attorney’s fees 528
and costs; and 529
(2) Actual damages caused by the appointment, including reasonable attorney’s 530
fees and costs. 531
Sec. 23. Final report of receiver; discharge. 532
(a) On completion of a receiver’s duties, the receiver shall file a final report including: 533 24
(1) A description of the activities of the receiver in the conduct of the 534
receivership; 535
(2) A list of receivership property at the commencement of the receivership and 536
any receivership property received during the receivership; 537
(3) A list of disbursements, including payments to professionals engaged by the 538
receiver; 539
(4) A list of dispositions of receivership property; 540
(5) A list of distributions made or proposed to be made from the receivership for 541
creditor claims; 542
(6) If not filed separately, a request for approval of the payment of fees and 543
expenses of the receiver; and 544
(7) Any other information required by the court. 545
(b) If the Superior Court approves a final report filed under subsection (a) and the 546
receiver distributes all receivership property, the receiver is discharged. 547
Sec. 24. Receivership in another state; ancillary proceeding. 548
(a) The Superior Court may appoint a receiver appointed in another state, or that 549
person’s nominee, as an ancillary receiver with respect to property located in the District or 550
subject to the jurisdiction of the court for which a receiver could be appointed under this act, if: 551
(1) The person or nominee would be eligible to serve as receiver under section 7; 552
and 553
(2) The appointment furthers the person’s possession, custody, control, or 554
disposition of property subject to the receivership in the other state. 555 25
(b) The Superior Court may issue an order that gives effect to an order entered in another 556
state appointing or directing a receiver. 557
(c) Unless the Superior Court orders otherwise, an ancillary receiver appointed under 558
subsection (a) has the rights, powers, and duties of a receiver appointed under this act. 559
Sec. 25. Effect of enforcement by mortgagee. 560
(a) A request by a mortgagee for appointment of a receiver, the appointment of a 561
receiver, or application by a mortgagee of receivership property or proceeds to the secured 562
obligation does not: 563
(1) Make the mortgagee a mortgagee in possession of the real property; 564
(2) Make the mortgagee an agent of the owner; 565
(3) Constitute an election of remedies that precludes a later action to enforce the 566
secured obligation; 567
(4) Make the secured obligation unenforceable; 568
(5) Limit any right available to the mortgagee with respect to the secured 569
obligation; or 570
(6) Except as otherwise provided in subsection (b), bar a deficiency judgment 571
pursuant to law of the District other than this act governing or relating to a deficiency judgment. 572
If a receiver sells receivership property that pursuant to section 16(c) is free and clear of a 573
lien, the ability of a creditor to enforce an obligation that had been secured by the lien is subject 574
to law of the District other than this act relating to a deficiency judgment. 575
Sec. 26. Uniformity of application and construction. 576
In applying and construing this uniform act, consideration must be given to the need to 577
promote uniformity of the law with respect to its subject matter among states that enact it. 578 26
Sec. 27. Relation to Electronic Signatures in Global and National Commerce Act. 579
This act modifies, limits, or supersedes the Electronic Signatures in Global and National 580
Commerce Act, 15 U.S.C. § 7001 et seq., but does not modify, limit, or supersede section 101(c) 581
of that act, 15 U.S.C. § 7001(c), or authorize electronic delivery of any of the notices described 582
in section 103(b) of that act, 15 U.S.C. § 7003(b). 583
Sec. 28. Transition. 584
This act does not apply to a receivership for which the receiver was appointed before the 585
effective date of this act. 586
Sec. 29. Fiscal impact statement. 587
The Council adopts the attached fiscal impact statement as the fiscal impact statement 588
required by section 602(c)(3) of the District of Columbia Home Rule Act, approved December 589
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(3)). 590
Sec. 30. Effective date. 591
This act shall take effect following approval by the Mayor (or in the event of veto by the 592
Mayor, action by the Council to override the veto), a 30-day period of Congressional review as 593
provided in section 602(c)(1) of the District of Columbia Home Rule Act, approved December 594
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(1)), and publication in the District of 595
Columbia Register. 596
The ULC is a nonprofit formed in 1892 to create nonpartisan state legislation. Over 350 volunteer commissioners—lawyers,
judges, law professors, legislative staff, and others—work together to draft laws ranging from the Uniform Commercial Code to
acts on property, trusts and estates, family law, criminal law and other areas where uniformity of state law is desirable.
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
Uniform Law Commission
111 N. Wabash Ave.
Suite 1010
Chicago, IL 60602
(312) 450- 6600 tel
(312) 450- 6601 fax
www.uniformlaws.org
THE UNIFORM COMMERCIAL REAL ESTATE RECEIVERSHIP ACT
- A Summary -
A receiver is someone appointed by a court to take possession of another person’s property and
manage it. Receivers can be used in a variety of situations, including:
• When the property is the subject of a lawsuit and its value must be preserved while the
issue is litigated;
• When the property includes an operating business, to sell its assets in an orderly manner
and maximize the return for its owners and/or creditors; and
• When requested by a creditor, to collect, preserve, and distribute the property of an
insolvent or defaulting debtor.
Currently, receivership procedures vary widely from state to state, and sometimes even from
court to court. The Uniform Commercial Real Estate Receivers hip Act (UCRERA) provides a
consistent set of rules for receiverships involving commercial property , including:
Due Process. Under UCRERA, the court may issue an order only after notic e and opportunity
for a hearing, unless no interested party requests a hearing or special circumstances require the
issuance of an order before a hearing can be held.
Appointment. UCRERA establishes uniform standards under which a court may appoint a
receiver, and under which a mortgage len der may obtain appointment of a receiver, either as a
matter of right or as a matter of the court’s discretion.
Identity and Independence. Because a receiver is the agent of the court , UCRERA requires
independent receivers. A party seeking the appointment of a receiver may nominate a person to
serve, but the nomination is not binding on the court.
Effect of Appointment. On appointment, a receiver has the legal status of a lien creditor with
respect to receivership property. However, pre -existing perfected security interests in
receivership property are unaffected.
Powers and Duties. UCRERA sets out the receiver’s presumptive powers, as well as those that
the receiver may exercise only with court approval. The act also sets out the duties of both the
receiver and the owner of receivership property.
Use or Sale of Receivership Property. Receivers can use or sell receivership property in the
ordinary course of business, but must get court approval for uses or transfers of property outside
the ordinary course of business. With cour t approval, sales may be free and clear of liens and
rights of redemption, except that junior lienholders may not force a sale free and clear of liens
without the consent of senior lienholders. Secured creditors are entitled to the proceeds of
property sales according to existing priority rules.
2
Existing Contracts and Leases. A receiver may accept or reject a pre- existing contract with
court approval, but UCRERA provides special protections for most commercial tenants of
receivership property as well as t enants who occupy receivership property as their primary
residences .
Creditor Claims. In most cases, a receiver must notify creditors of the receivership, and
creditors must file claims with the receiver before receiving distributions from receivership
property.
Reporting. A receiver must file periodic reports with the court overseeing the receivership,
creating a public record of receivership accounts.
Receivership in Context of Mortgage Enforcement. Under UCRERA, a mortgage lender that
requests appointment of a receiver is not liable as a possessor of receivership property and
retains other remedies for enforcing the mortgage.
UCRERA provides a set of uniform rules that should provide more predictability to lenders and
borrowers alike. It gives state courts guidance on the receivership process while preserving the
court’s flexibility to craft a remedy appropriate under the circumstances.
For further information about UCRERA, please contact ULC Chief Counsel Benjamin Orzeske at
(312) 450-6621 or borzeske@uniformlaws.org
.
The ULC is a nonprofit formed in 1892 to create nonpartisan state legislation. Over 350 volunteer commissioners—lawyers,
judges, law professors, legislative staff, and others—work together to draft laws ranging from the Uniform Commercial Code to
acts on property, trusts and estates, family law, criminal law and other areas where uniformity of state law is desi rable.
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
Uniform Law Commission
111 N. Wabash Ave.
Suite 1010
Chicago, IL 60602
(312) 450- 6600 tel
(312) 450- 6601 fax
www.uniformlaws.org
WHY YOUR STATE SHOULD ADOPT THE
U
NIFORM COMMERCIAL REAL ESTATE RECEIVERSHIP ACT (UCRERA)
A receiver is a person appointed by a court to take possession of property and to manage or dispose of
that property and any income the property produces. Usually the property or its owner is the subject of a
lawsuit or a foreclosure action. The receiver’s job is to ensure the property retains its maximum value and
that any income is distributed to the proper parties.
Courts usually appoint receivers of commercial property when the court needs a responsible party to run a
business located on the property, collect rents, or sell the property in an orderly manner. However, the
standards for court appointment and the powers of the receiver vary widely from state to state , and
sometimes from court to court. The Uniform Commercial Real Estate Receivership Act (UCRERA)
provides a basic set of standard rules for receiverships, and gives courts the flexibility to design the most
appropriate remedy for the circumstances. States should adopt UCRERA because:
• UCRERA provides certainty for business owners and creditors. Commercial lending markets
operate most efficiently when the rules are consistent from state to state . Under UCRERA, all
parties know exactly when a receiver may be appointed and what powers a receiver may exercise.
• UCRERA is fair to all parties. No receiver may be appointed under UCRERA without notice and
an opportunity for a court hearing, unless special circumstances make that impossible. Receivers
must post a security bond and are subject to court supervision and removal. Anyone who
wrongfully obtains appointment of a receiver is liable for damages, including legal fees.
• UCRERA can preserve and maximize the value of commercial property. Standard comm ercial
mortgage contracts give the lender a right to have a receiver appointed in the event of default.
Under UCRERA, with court approval, a receiver may sell receivership property free and clear of
liens and rights of redemption (i.e., with the same effect as a foreclosure sale) without impairing a
senior mortgage. This permits a receiver to market and sell receivership property more effectively
than through foreclosure (which by law is a “distress sale” at public auction), and thus receiver
sales under UCRERA should produce higher sale prices. UCRERA’s fair and efficient procedures
should encourage lenders to choose receivership, but do not prevent lenders from choosing to
proceed with a traditional foreclosure.
• UCRERA helps state courts implement proper remedies. A receiver can act as an extension of
the court, doing the practical day-to-day work necessary to preserve property and income as
necessary to implement the court’s orders.
• UCRERA is limited to commercial property . No receiver may be appointed for owner -occupied
real property improved with one to four dwelling units unless the owner uses the property
primarily for agricultural, commercial, industrial, or mineral- extraction purposes.
For further information about UCRERA, please contact ULC C hief Counsel Benjamin Orzeske
at (312) 450-6621 or borzeske@uniformlaws.org
.
UNIFORM COMMERCIAL REAL ESTATE
RECEIVERSHIP ACT
drafted by the
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
and by it
APPROVED AND RECOMMENDED FOR ENACTMENT
IN ALL THE STATES
at its
ANNUAL CONFERENCE
MEETING IN ITS ONE-HUNDRED-AND-TWENTY-FOURTH YEAR
WILLIAMSBURG, VIRGINIA
JULY 10 - JULY 16, 2015
WITH PREFATORY NOTE AND COMMENTS
Copyright © 2015
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
July 29, 2016 ABOUT ULC
The Uniform Law Commission (ULC), also known as National Conference of Commissioners
on Uniform State Laws (NCCUSL), now in its 124th year, provides states with non-partisan,
well-conceived and well-drafted legislation that brings clarity and stability to critical areas of
state statutory law.
ULC members must be lawyers, qualified to practice law. They are practicing lawyers, judges,
legislators and legislative staff and law professors, who have been appointed by state
governments as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands to
research, draft and promote enactment of uniform state laws in areas of state law where
uniformity is desirable and practical.
• ULC strengthens the federal system by providing rules and procedures that are consistent
from state to state but that also reflect the diverse experience of the states.
• ULC statutes are representative of state experience, because the organization is made up
of representatives from each state, appointed by state government.
• ULC keeps state law up-to-date by addressing important and timely legal issues.
• ULC’s efforts reduce the need for individuals and businesses to deal with different laws
as they move and do business in different states.
• ULC’s work facilitates economic development and provides a legal platform for foreign
entities to deal with U.S. citizens and businesses.
• Uniform Law Commissioners donate thousands of hours of their time and legal and
drafting expertise every year as a public service, and receive no salary or compensation
for their work.
• ULC’s deliberative and uniquely open drafting process draws on the expertise of
commissioners, but also utilizes input from legal experts, and advisors and observers
representing the views of other legal organizations or interests that will be subject to the
proposed laws.
• ULC is a state-supported organization that represents true value for the states, providing
services that most states could not otherwise afford or duplicate.
UNIFORM COMMERCIAL REAL ESTATE RECEIVERS HIP ACT
The Committee appointed by and representing the National Conference of Commissioners on
Uniform State Laws in preparing this Act consists of the following individuals:
THOMAS S. HEMMENDINGER, 362 Broadway, Providence, RI 02909-1434, Chair
JACK P. BURTON, 119 E. Marcy St., Suite 200, Santa Fe, NM 87501-2046
STEPHEN C. CAWOOD, 127 Ridgewood Cir., Pineville, KY 40977-1409
ELLEN F. DYKE, 2125 Cabots Point Ln., Reston, VA 20191
THOMAS A. EDMONDS, 9401 Michelle Pl., Richmond, VA 23229
PATRICIA BRUMFIELD FRY, P.O. Box 3880, Edgewood, NM 87015-3880
DONALD E. MIELKE, 6534 S. Chase St., Littleton, CO 80123
FRED H. MILLER, 80 S. 8th St., 4200 IDS Center, Minneapolis, MN 55402-2274
ROSEMARY S. SACKETT, 5401 Lake Shore Dr., Box 949, Okoboji, IA 51355-2599
MARK SANDLIN, 9301 Dayflower St., Prospect, KY 40059
MARY GAY TAYLOR-JONES, 18 N. Foxhill Rd., North Salt Lake, UT 84054
R. WILSON FREYERMUTH, University of Missouri School of Law, 215 Hulston Hall,
Columbia, MO 65211, Reporter
EX OFFICIO
HARRIET LANSING, 1 Heather Pl., St. Paul, MN 55102-3017, President
LANE SHETTERLY, 189 SW Academy St., P.O. Box 105, Dallas, OR 97338, Division Chair
AMERICAN BAR ASSOCIATION ADVISOR S
JOHN M. TROTT, 2049 Century Park E., 28th Floor, Los Angeles, CA 90067-3284, ABA
Advisor
JEFFREY M. ALLEN, 436 14th
St., Suite 1400, Oakland, CA 94612-2716, ABA Section Advisor
JAMES L. SCHWARTZ, 617 W. Fulton St., 5th Floor, Chicago, IL 60661, ABA Section
Advisor
KAY STANDRIDGE KRESS, 4000 Town Center, Suite 1800, Southfield, MI 48075-1505, ABA
Section Advisor
JUSTIN G. WILLIAMS, P.O. Box 3206, Tuscaloosa, AL 35403-3206, ABA Section Advisor
EXECUTIVE DIRECTOR
LIZA KARSAI, 111 N. Wabash Ave., Suite 1010, Chicago, IL 60602, Executive Director
Copies of this act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
111 N. Wabash Ave., Suite 1010
Chicago, Illinois 60602
312/450-6600
www.uniformlaws.org
UNIFORM COMMERCIAL REAL ESTATE RECEIVERS HIP ACT
TABLE OF CONTENTS
Prefatory Note ................................................................................................................................. 1
SECTION 1. SHORT TITLE. ....................................................................................................... 9
SECTION 2. DEFINITIONS. ........................................................................................................ 9
SECTION 3. NOTICE AND OPPORTUNITY FOR HEARING. .............................................. 15
SECTION 4. SCOPE; EXCLUSIONS. ....................................................................................... 16
SECTION 5. POWER OF COURT. ............................................................................................ 22
SECTION 6. APPOINTMENT OF RECEIVER. ........................................................................ 24
SECTION 7. DISQUALIFICATION FROM APPOINTMENT AS RECEIVER; DISCLOSURE
OF INTEREST.................................................................................................................. 28
SECTION 8. RECEIVER’S BOND; ALTERNATIVE SECURITY. ......................................... 30
SECTION 9. STATUS OF RECEIVER AS LIEN CREDITOR. ................................................ 32
SECTION 10. SECURITY AGREEMENT COVERING AFTER -ACQUIRED PROPERTY. . 33
SECTION 11. COLLECTION AND TURNOVER OF RECEIVERSHIP PROPERTY. .......... 35
SECTION 12. POWERS AND DUTIES OF RECEIVER. ......................................................... 37
SECTION 13. DUTIES OF OWNER. ......................................................................................... 41
SECTION 14. STAY; INJUNCTION. ........................................................................................ 43
SECTION 15. ENGAGEMENT AND COMPENSATION OF PROFESSIONAL. .................. 47
SECTION 16. USE OR TRANSFER OF RECEIVERSHIP PROPERTY NOT IN ORDINARY
COURSE OF BUSINESS. ................................................................................................ 48
SECTION 17. EXECUTORY CONTRACT. .............................................................................. 55
SECTION 18. DEFENSES AND IMMUNITIES OF RECEIVER. ............................................ 62
SECTION 19. INTERIM REPORT OF RECEIVER. ................................................................. 63
SECTION 20. NOTICE OF APPOINTMENT; CLAIM AGAINST RECEIVERSHIP;
DISTRIBUTION TO CREDITORS. ................................................................................ 64
SECTION 21. FEES AND EXPENSES. ..................................................................................... 68
SECTION 22. REMOVAL OF RECEIVER; REPLACEMENT; TERMINATION OF
RECEIVERSHIP. ............................................................................................................. 69
SECTION 23. FINAL REPORT OF RECEIVER; DISCHARGE. ............................................. 70
SECTION 24. RECEIVERSHIP IN ANOTHER STATE; ANCILLARY PROCEEDING. ...... 71
SECTION 25. EFFECT OF ENFORCEMENT BY MORTGAGEE. ......................................... 73
SECTION 26. UNIFORMITY OF APPLICATION AND CONSTRUCTION. ......................... 74
SECTION 27. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT. .................................................................................... 74
SECTION 28. TRANSITION. ..................................................................................................... 75
SECTION 29. REPEALS; CONFORMING AMENDMENTS. ................................................. 75
SECTION 30. EFFECTIVE DATE. ............................................................................................ 75
1
Prefatory Note
Introduction. A receiver is a person appointed by a court to take possession of the
property of another and to “receive, collect, care for, and dispose of the property or the fruits of
the property.” 1 Clark on Receivers § 11(a), at 13 (3d ed. 1959). Courts exercising general
equity jurisdiction have traditionally appointed receivers in a variety of different contexts:
Courts have appointed pendente lite receivers to preserve property that is the subject
matter of pending litigation, thereby preventing its waste, deterioration, or removal before
judgment.
Courts have appointed receivers after entry of a judgment to preserve the property
pending appeal, to carry the judgment into effect, or to enforce the judgment.
Courts have appointed receivers to preserve the property of a corporation, partnership, or
other legal entity in the context of the dissolution or winding up of the entity, or where
the entity is operationally dysfunctional because of an ownership or management dispute.
Courts have appointed receivers, at the behest of one or more creditors, to collect,
preserve, administer, liquidate and distribute the property of insolvent debtors.
Where authorized by statute or the usages of equity, receivers may also be appointed for the
administration of certain entities affected with the public interest, such as railways, banks, or
insurance companies.
Courts also commonly appoint receivers at the request of a mortgage lender that seeks to
enforce a mortgage in default. A typical commercial real estate mortgage or deed of trust
explicitly provides that on default, the mortgagee may seek the appointment of a receiver from a
court with jurisdiction over the mortgaged premises; frequently, the terms of the mortgage or
deed of trust purport to provide mortgagor consent for the appointment of a receiver following
default. Traditionally, mortgage lenders have sought the appointment of a receiver pending
foreclosure for one or more of several reasons:
The mortgaged property is located in a state where the foreclosure process takes a
substantial period of time (e.g., six months or longer). In such states, during the
pendency of the foreclosure proceeding, the mortgaged premises will typically generate
substantial rents from tenants or other occupiers. In most loan transactions, these rents
have been assigned to the mortgagee as security for the loan, and the lender reasonably
expects them to be applied toward reduction of the mortgage debt. Application of these
rents to the debt is of particular importance where the value of the mortgaged premises
has declined, the mortgage loan is “nonrecourse” (i.e., where the borrower has no
personal liability for the loan’s repayment), the mortgagee is a special purpose vehicle, or
the mortgagee is otherwise unlikely to be able to pay a deficiency. In these situations,
application of the rents to the mortgage debt could help to reduce or even eliminate the
deficiency that might follow a completed foreclosure. Thus, obtaining the appointment
of a receiver prevents the mortgagor from diverting rents to other creditors or insiders of 2
the mortgagor pending a foreclosure sale.
The mortgaged property is subject to waste, deterioration, or some other immediate
physical harm that threatens to reduce the value of the mortgaged property and thus
threatens the mortgagee’s security.
The mortgaged property might be subject to a high vacancy rate or underperforming due
to poor property management. In such a case, the mortgagee might wish to provide better
and more active property management and to enter into new tenant leases. In this
situation, the mortgagee might prefer to secure the appointment of a receiver to provide
this day-to-day management, both because (1) the appointment of a receiver would
insulate the mortgagee from the liability that the mortgagee would assume if the
mortgagee provided this property management directly and thereby became a “mortgagee
in possession,” and (2) the receiver might be a person with specialized expertise in
operating and “turning around” a property of that type.
The mortgaged collateral might include not only real estate but substantial personal
property as well, as would be the case (for example) where the collateral is a hotel or
resort property. In this situation, the mortgagee might wish to proceed with foreclosure
in a judicial proceeding so as to minimize or avoid any claim that might arise if it
disposed of the personal property under Article 9 of the Uniform Commercial Code and
the disposition was subsequently attacked as being commercially unreasonable.
The property might be subject to environmental contamination, and the mortgagee does
not want to be in the chain of title or to rely solely on statutory exemptions from federal
or state environmental laws that might depend on the mortgagee’s status as a secured
creditor. See, e.g., 42 U.S.C.A. § 9601(20)(A) (excluding from federal CERCLA “owner
and operator” liability any person who “without participating in the management of a …
facility, holds indicia of ownership primarily to protect his security interest in the …
facility”).
The Need for a Uniform Act. Unfortunately, very few states have comprehensive
statutory guidance regarding the appointment and powers of receivers for commercial real estate.
In the vast majority of states, receivers are appointed pursuant to a court’s general equitable
power to appoint a receiver, with minimal statutory guidance either expressly confirming or
limiting the power of a receiver. A small handful of states (including California, Indiana,
Nebraska, New Mexico, Ohio, Oklahoma, and South Dakota) provide a moderate amount of
statutory guidance regarding the appointment and powers of receivers. Only two states —
Washington and Minnesota — provide a comprehensive statutory codification of the laws
governing the appointment and powers of receivers and receivership procedures.
Likewise, to date, no uniform law addresses the appointment and powers of real estate
receivers in a comprehensive fashion. Although the Uniform Assignment of Rents Act (UARA),
promulgated in 2005, does address the evidentiary showing necessary to obtain the appointment
of a receiver, UARA’s focus is limited to appointment at the request of an assignee of rents, and
nothing in UARA explicitly addresses either receivership procedure or the scope of the powers 3
that a receiver of real estate may exercise before foreclosure.
As a result, there is variation from state to state with regard to the laws governing
appointment and powers of receivers. Furthermore, because most states have such minimal
statutory guidance, there is even variation from one county, district, parish, or municipal
subdivision to the next within a state, as individual judges might have disparate perspectives on
the circumstances in which a receivership constitutes an appropriate remedy. The following
provides a non-exhaustive list of some of these inter-state and intra-state variations:
There is substantial variation as to the circumstances that justify the appointment of a
receiver, particularly in the case of mortgaged property. Some courts require that the
petitioning party establish the existence of waste; other courts do not require the
existence of waste if the property’s value is insufficient to satisfy the mortgage debt;
others simply permit the petitioning mortgagee to obtain a receiver if the mortgage is in
default and the mortgagor consented in the mortgage to the appointment of a receiver
after default.
There is substantial variation as to the circumstances, if any, that justify ex parte
appointment of a receiver and the procedures associated with ex parte appointment.
Some courts routinely appoint receivers on an ex parte basis with no heightened
evidentiary showing required, particularly where the mortgagor consented to ex parte
appointment in the mortgage or deed of trust. Other courts refuse ex parte appointment
outright, or require the petitioning mortgagee to establish the circumstances justifying
appointment without prior notice to the mortgagor.
There is substantial variation as to the enforceability of provisions in the mortgage or
deed of trust by which the mortgagor consents in advance to the appointment of a
receiver after default. In some states, such contractual provisions are enforceable as a
matter of right. See, e.g., Ind. Code § 32-30-5-1; Minn. Stat. Ann. § 559.17, subd. 2;
N.Y. Real Prop. Law § 254(10); N. Mex. Stat. Ann. § 44-8-4(A). By contrast, most
existing statutes provide (or have been interpreted to mean) that the decision to appoint a
receiver rests in the discretion of the court, without regard to the terms of the mortgage. 4
Clark on Receivers § 950, at 1718 (3d ed. 1959).
Furthermore, in many states, existing receivership statutes simply do not address a
number of questions concerning receivership procedure. For example, many state statutes do not
address such issues as the necessity or amount of the receiver’s bond, the necessity or amount of
a bond from the person seeking appointment of a receiver, the eligibility requirements for service
as a receiver, or the requirements for notification to creditors. These shortcomings make it more
difficult for “best practices” to develop in the receivership context.
Finally, the existing receivership laws in most states do not adequately set forth the
powers that a receiver may (or may not) exercise, either with or without prior approval of the
court. This can result in potential uncertainty regarding the ability of a receiver to borrow
money, to approve or reject executory contracts entered into by the owner of the property
(including unexpired leases), to sell receivership property other than in the ordinary course of 4
business, or to make improvements to receivership property.
In particular, there is substantial current uncertainty regarding whether a receiver has the
power to sell real estate. Customarily, a receiver’s ability to sell receivership property varies
depending on the circumstances of the receivership. When a court appoints a general receiver
for all of the assets of an insolvent debtor, the court commonly authorizes the receiver to gather
and sell the assets of the debtor. The court frequently empowers such a receiver, in the
receivership order, to sell assets both in the ordinary course of business (such as sales of
inventory) and even outside of the ordinary course with court approval.
By contrast, when a court appoints a limited receiver to take possession of a specific asset
— such as a receiver for mortgaged property — the receiver’s role is more typically viewed as
custodial. For this reason, receivers appointed for mortgaged property are often viewed as
having the power to operate, maintain, and preserve the property pending a foreclosure sale, but
not to sell the property; instead, a sale would occur, if at all, only in the context of the foreclosure
proceeding.
Recently, some commentators have advocated that receivership can be an effective way
to dispose of real estate, and mortgaged real property in particular. Indeed, there are at least
three specific contexts in which a sale by the receiver might be advantageous:
Sale of property securing commercial mortgaged-backed securities (CMBS) loans.
CMBS loans are held in real estate mortgage investment conduits (“REMICs”), which are
special purpose vehicles used for the pooling of mortgage loans and the issuance of
mortgage-backed securities. The Internal Revenue Code forbids REMICs from issuing
new debt or making new loans, but permits some modifications to an existing defaulted
loan. Thus, when a REMIC completes a foreclosure sale, it cannot make a new loan on a
seller-financing basis. However, if the property can be sold (through a receiver or by the
borrower directly) with the buyer assuming the mortgage, the mortgage loan can be
modified and restructured under the REMIC rules. Often, this can produce a sale at a
higher value than by comparison to a cash sale, and thus is attractive to lenders who want
to avoid foreclosing on a property that is worth less than the outstanding mortgage debt.
See generally John C. Murray and Kenneth R. Jannen, Public and Private Sales of Real
Property by Federal Court Receivers, ACREL Papers (March 2011).
Foreclosure sale at “arms-length” rather than “distress sale.” Under current
foreclosure law in all 50 states, a foreclosure sale is a “distress sale,” i.e., a public auction
sale, typically “on the courthouse steps.” Foreclosure by sale has been justified as a
means to protect the mortgagor’s equity in the mortgaged property, particularly by
comparison to the historical approach under which a defaulting borrower simply forfeited
its interest in the mortgaged property (and any equity the borrower might have
accumulated either through principal reduction or market appreciation). Nevertheless,
there is concern that foreclosure sales do not always bring prices that reflect the value
that might be obtained in an arms-length, non-distress sale. By contrast to a traditional
foreclosure, a receiver could theoretically market the mortgaged property to potential
buyers in the context of its operation of the property. Marketing of the property in an 5
arms-length context could permit potential buyers to perform more meaningful and
complete due diligence; further, a sale that is both free and clear of liens and rights of
redemption and subject to judicial confirmation could produce greater finality regarding
the title acquired by the buyer. In theory, providing potential foreclosure buyers with
better information regarding the mortgaged property and greater certainty of title should
produce sale prices higher than those that would be produced by distress foreclosure
sales.
Foreclosure in a “unified” sale of realty and personalty. In some circumstances, it might
make sense for a creditor to sell “mixed” personal and real property collateral as a going
concern in one sale, rather than selling the personalty under Article 9 and the realty in a
separate real estate foreclosure. Ostensibly, U.C.C. § 9-604(a) facilitates unified sales of
mixed collateral by providing that “[i]f a security agreement covers both real and
personal property, a secured party may proceed … as to both the personal property and
the real property in accordance with the rights with respect to the real property,” in which
case Article 9’s foreclosure provisions do not apply. U.C.C. § 9-604(a)(2). Unfortunately,
§ 9-604(a)’s language leaves a number of interpretive questions that compromise its
potential effectiveness in the mixed collateral context. These questions include (a)
whether the security interests in the realty and the personalty must be created in the same
document or can arise under separate documents; (b) whether the personalty and realty
must be used in some closely related way to be sold in a unified sale; and (c) whether the
secured party must dispose of all of the personalty under the rules of real estate law or
can instead dispose of some of it (along with the land) in a unified sale and the rest in an
Article 9 disposition. These interpretive gaps might discourage some mortgagees from
attempting unified sales.
As to receivership sales, federal law has evolved further than state statutory law. Federal
law authorizes receivers appointed by a federal court to sell mortgaged property free and clear of
liens. 28 U.S.C.A. §§ 2001 to 2004. The federal statutes are vague with respect to the procedures
for marketing and selling the property, “thereby allowing for flexibility and creativity.” Kay
Kress, Federal Receiverships (2005 ABA Business Law Section Meeting). Furthermore, federal
courts have concluded that “the power of sale is within the scope of a receiver’s ‘complete
control’ over receivership assets …, a conclusion firmly rooted in the common law of equity
receiverships.” Securities Exch. Comm’n v. American Capital Investments, Inc., 98 F.3d 1133,
1144 (9th Cir. 1996). The federal statute specifically authorizes receivers appointed by a federal
court to conduct a private sale after notice to all interested parties and a hearing. 28 U.S.C. §
2001(b). Further, federal courts have concluded that there is no right of post-sale redemption
from judicial sales conducted under 28 U.S.C.A. § 2001(b), notwithstanding any state statutory
redemption rights the mortgagor might otherwise claim. See, e.g., United States v. Heasley, 283
F.2d 422 (8th Cir. 1960).
For the reasons described above, substantial benefits could flow to the resolution of
distressed commercial mortgage loans if state law explicitly granted a receiver the power of sale
as recognized under federal law. Unfortunately, most existing state statutes do not specifically
authorize a receiver to conduct a sale of real property, and some courts have held that in the
absence of express statutory authority, receivers lack the authority to conduct such sales. See, 6
e.g., Kirven v. Lawrence, 137 S.E.2d 764 (S.C. 1964) (receiver does not have inherent power of
sale, as receivership is “custodial” in nature and designed to preserve the status quo); Andrick
Dev. Corp. v. Maccaro, 311 S.E.2d 95 (S.C. Ct. App. 1984) (same); Eppes v. Dade Developers,
Inc., 170 So. 875 (Fla. 1936); Shubh Hotels Boca, LLC v. FDIC, 46 So.3d 163 (Fla. Dist. Ct.
App. 2010) (receiver lacked power to sell hotel even though court had authorized the sale; no
Florida statute authorizes a court-appointed receiver in a foreclosure case to sell the mortgaged
property in contravention of mortgagor’s right of redemption). To provide the needed clarity, the
Act provides more explicit rules addressing the extent to which a receiver can sell receivership
property, either subject to or free and clear of existing liens and rights of redemption.
Summary of the Act. The following paragraphs provide a brief summary of the primary
provisions of the Act.
Notice and Opportunity for a Hearing. Under the Act, the court may enter orders
only after notice and opportunity for a hearing as is appropriate under the
circumstances. § 3(a), (b). The court may issue an order without an actual hearing if
no interested party timely requests a hearing or the particular circumstances require
the issuance of an order before a hearing can be held.
Scope. The Act applies to receiverships for real property as well as personal property
that is related to the real property or used in its operation. § 4(a). It does not govern a
receivership for an interest in real property improved by one to four dwelling units,
unless (1) the interest is used for agricultural, commercial, industrial, or mineral
extraction purposes, other than incidental uses by an owner occupying the property as
the owner’s primary residence; (2) the interest secures an obligation incurred when
the property was used or planned for use for agricultural, commercial, industrial, or
mineral extraction purposes; (3) the owner planned or is planning to develop the
property with one or more dwelling units to be sold or leased in the ordinary course of
the owner’s business, or (4) the owner collects rents or other income from an
unrelated tenant or other occupier. § 4(b). The Act does not provide the exclusive
method for the appointment of a receiver. § 4(d).
Court. The state’s court of general equity jurisdiction has exclusive jurisdiction of the
receivership proceeding. § 5.
Appointment. The Act establishes standards under which a court may appoint a receiver
in the exercise of its equitable discretion. § 6(a). The Act also establishes standards under
which a petitioning mortgage lienholder is entitled to appointment of a receiver, either as
a matter of right or as a matter of the court’s discretion. § 6(b). Where the court appoints
a receiver on an ex parte basis, the court may require the party seeking appointment to
post security for any damages, attorney’s fees and costs incurred by a person injured by
an appointment later determined to be unjustified. § 6(c).
Identity and Independence of Receiver. Because a receiver holds receivership property
for the benefit of all interested parties, the Act requires that the receiver provide sworn
evidence of the receiver’s independence, § 7(a), (b), subject to an exception to prevent 7
disqualification based on certain pre-existing relationships that are de minimis in nature. §
7(c). While a party seeking the appointment of a receiver may nominate a person to
serve as a receiver, the nomination is not binding on the court. § 7(d).
Effect of Appointment. On appointment, a receiver has the status and priority of a lien
creditor with respect to receivership property. § 9. Appointment of a receiver does not
affect the validity of a pre-receivership security interest in receivership property, and
property acquired after appointment is subject to any pre-receivership security agreement
to the same extent as if no receiver had been appointed. § 10. On appointment, persons
having possession, custody or control of receivership property must turn the property
over to the receiver, and persons owing debts that constitute receivership property must
pay those debts to the receiver. § 11. Entry of the order of appointment effects a stay,
applicable to all persons, of an act to obtain possession of, exercise control over, or
enforce a judgment against receivership property, as well as an act to enforce a lien
against receivership property. § 14(a). In appropriate situations, the court can expand the
scope of the stay, § 14(b), and grant relief from the stay, § 14(c). However, for policy
reasons, certain actions are outside the scope of the stay. § 14(d). The Act also addresses
the consequences of a violation of the stay. § 14(e), (f).
Powers and Duties of Receiver; Duties of Owner. The Act sets forth the receiver’s
presumptive powers, § 12(a), as well as those that the receiver may exercise only with
court approval. § 12(b). The Act also sets forth the duties of the receiver, § 12(c), and the
duties of the owner of receivership property. § 13.
Engagement and Compensation of Professionals. The Act authorizes the receiver to
engage and pay professionals to assist in the administration of the receivership following
court approval. § 15.
Use, Sale, Lease, License, or Other Transfer of Receivership Property Other than in
Ordinary Course. With court approval, the Act permits the receiver to use, sell, lease,
license, exchange or otherwise transfer receivership property other than in the ordinary
course of business. § 16(b), (c). Unless the agreement of transfer provides otherwise, the
transfer is free and clear of rights of redemption and liens other than liens that are senior
to the lien of the person who obtained the receiver’s appointment. § 16(c). Liens
extinguished by the receiver’s sale attach to proceeds with the same validity, perfection,
and priority as they had with respect to the property sold. § 16(d). The sale may be
conducted as a private sale, and creditors with valid secured claims may credit bid. §
16(e). The Act also provides a safe harbor for purchasers, in case a party objects to the
sale but fails to get a stay of the order approving the sale. § 16(f). Secured creditors are
entitled to the proceeds of their collateral according to the priority rules established by
law other than this Act, § 20(g), although the court may award the receiver the reasonable
and necessary fees and expenses for carrying out the receiver’s duties. § 21(a).
Executory Contracts and Unexpired Leases. With court approval, a receiver may adopt
or reject an executory contract of the owner relating to receivership property. § 17(b).
The Act covers the mechanics for adoption or rejection of executory contracts. § 17(c). 8
The receiver may also assign an adopted executory contract to the extent permitted by the
contract and applicable law other than this Act, but free of so-called “ipso facto” clauses.
§ 17(d), (f). The Act specifies the consequences of a receiver’s rejection of an executory
contract. § 17(e). The Act contains protections for purchasers in possession of real
property or real property time share interests that are analogous to those contained in the
Bankruptcy Code. § 17(g). The Act also limits the receiver’s ability to reject the
unexpired lease of a tenant, permitting rejection of the lease only in very limited
situations. § 17(h).
Immunity of Receiver. Consistent with the receiver’s status as an officer of the court, the
Act provides the receiver with immunity for acts or omissions within the scope of the
receiver’s appointment. § 18(a). Further, the Act incorporates the Barton doctrine and
provides that a receiver cannot be sued personally for an act or omission in administering
receivership property except with the approval of the appointing court. § 18(b).
Claims. The Act requires the receiver to notify creditors of the appointment of the
receiver unless the court orders otherwise, § 20(a), (e), and requires creditors to file
claims with the receiver as a precondition to obtaining any distribution from receivership
property or the proceeds of such property. § 20(b). The Act permits the receiver to
recommend disallowance of claims. § 20(e). The Act also authorizes the court to forgo
the filing of unsecured claims where the receivership property is likely to be insufficient
to satisfy secured claims against the property. § 20(f).
Receiver’s Reports. The receiver must file interim reports (as directed by the court) and,
on completion of the receiver’s duties, a final report. §§ 19 and 23.
Ancillary Receivership. Where a receiver has been appointed by another state, the Act
authorizes the court to appoint that person or its designee as an ancillary receiver for the
purpose of obtaining possession, custody and control of receivership property located
within this state. § 24(a). The Act also permits the court to enter any order necessary to
effectuate an order of a court in another state appointing or directing a receiver. § 24(b).
Receivership in Context of Mortgage Enforcement. The Act makes clear that the
appointment of a receiver on request by a mortgagee or assignee of rents, and actions
taken by the receiver, do not make the mortgagee or assignee of rents a “mortgagee in
possession,” do not constitute an election of remedies or make the secured obligation
unenforceable, and do not constitute an “action” within the meaning of a state’s “one-
action” rule. § 25(a). In a state with anti-deficiency rules, where a receiver conducts a
sale of receivership property free and clear of a lien, the state’s anti-deficiency rules will
apply to any person that held a lien extinguished by the sale to the same extent those rules
would have applied after a foreclosure sale not governed by the Act. § 25(b).
9
UNIFORM COMMERCIAL REAL ESTATE RECEIVERS HIP ACT
SECTION 1. SHORT TITLE. This [act] may be cited as the Uniform Commercial
Real Estate Receivership Act.
SECTION 2. DEFINITIONS. In this [act]:
(1) “Affiliate” means:
(A) with respect to an individual:
(i) a companion of the individual;
(ii) a lineal ancestor or descendant, whether by blood or adoption, of:
(I) the individual; or
(II) a companion of the individual;
(iii) a companion of an ancestor or descendant described in clause (ii);
(iv) a sibling, aunt, uncle, great aunt, great uncle, first cousin, niece,
nephew, grandniece, or grandnephew of the individual, whether related by the whole or the half
blood or adoption, or a companion of any of them; or
(v) any other individual occupying the residence of the individual; and
(B) with respect to a person other than an individual:
(i) another person that directly or indirectly controls, is controlled by, or is
under common control with the person;
(ii) an officer, director, manager, member, partner, employee, or trustee or
other fiduciary of the person; or
(iii) a companion of, or an individual occupying the residence of, an
individual described in clause (i) or (ii).
(2) “Companion” means: 10
(A) the spouse of an individual;
(B) the [registered] domestic partner of an individual; or
(C) another individual in a civil union with an individual.
(3) “Court” means [identify court of general equity jurisdiction in this state].
(4) “Executory contract” means a contract, including a lease, under which each party has
an unperformed obligation and the failure of a party to complete performance would constitute a
material breach.
(5) “Governmental unit” means an office, department, division, bureau, board,
commission, or other agency of this state or a subdivision of this state.
(6) “Lien” means an interest in property which secures payment or performance of an
obligation.
(7) “Mortgage” means a record, however denominated, that creates or provides for a
consensual lien on real property or rents, even if it also creates or provides for a lien on personal
property.
(8) “Mortgagee” means a person entitled to enforce an obligation secured by a mortgage.
(9) “Mortgagor” means a person that grants a mortgage or a successor in ownership of
the real property described in the mortgage.
(10) “Owner” means the person for whose property a receiver is appointed.
(11) “Person” means an individual, estate, business or nonprofit entity, public
corporation, government or governmental subdivision, agency, or instrumentality, or other legal
entity.
(12) “Proceeds” means the following property:
(A) whatever is acquired on the sale, lease, license, exchange, or other disposition 11
of receivership property;
(B) whatever is collected on, or distributed on account of, receivership property;
(C) rights arising out of receivership property;
(D) to the extent of the value of receivership property, claims arising out of the
loss, nonconformity, or interference with the use of, defects or infringement of rights in, or
damage to the property; or
(E) to the extent of the value of receivership property and to the extent payable to
the owner or mortgagee, insurance payable by reason of the loss or nonconformity of, defects or
infringement of rights in, or damage to the property.
(13) “Property” means all of a person’s right, title, and interest, both legal and equitable,
in real and personal property, tangible and intangible, wherever located and however acquired.
The term includes proceeds, products, offspring, rents, or profits of or from the property.
(14) “Receiver” means a person appointed by the court as the court’s agent, and subject
to the court’s direction, to take possession of, manage, and, if authorized by this [act] or court
order, transfer, sell, lease, license, exchange, collect, or otherwise dispose of receivership
property.
(15) “Receivership” means a proceeding in which a receiver is appointed.
(16) “Receivership property” means the property of an owner which is described in the
order appointing a receiver or a subsequent order. The term includes any proceeds, products,
offspring, rents, or profits of or from the property.
(17) “Record”, used as a noun, means information that is inscribed on a tangible medium
or that is stored on an electronic or other medium and is retrievable in perceivable form.
(18) “Rents” means: 12
(A) sums payable for the right to possess or occupy, or for the actual possession
or occupation of, real property of another person;
(B) sums payable to a mortgagor under a policy of rental-interruption insurance
covering real property;
(C) claims arising out of a default in the payment of sums payable for the right to
possess or occupy real property of another person;
(D) sums payable to terminate an agreement to possess or occupy real property of
another person;
(E) sums payable to a mortgagor for payment or reimbursement of expenses
incurred in owning, operating, and maintaining real property or constructing or installing
improvements on real property; or
(F) other sums payable under an agreement relating to the real property of another
person which constitute rents under law of this state other than this [act].
(19) “Secured obligation” means an obligation the payment or performance of which is
secured by a security agreement.
(20) “Security agreement” means an agreement that creates or provides for a lien.
(21) “Sign” means, with present intent to authenticate or adopt a record:
(A) to execute or adopt a tangible symbol; or
(B) to attach to or logically associate with the record an electronic sound, symbol,
or process.
(22) “State” means a state of the United States, the District of Columbia, Puerto Rico,
the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction
of the United States. 13
Comment
1. “Affiliate.” The Act uses the term to describe a person who is presumptively disqualified
from serving as a receiver under Section 7 based on the person’s relationship with a party to the
proceeding. The term is also used in conjunction with the Act’s scope exclusion for residential
real property in Section 4(b). The definition derives from the Uniform Debt-Management
Services Act (2011).
2. “Companion.” The term means the spouse or [registered] domestic partner of an
individual as well as another individual in a civil union with the individual. This definition
works in conjunction with the definition of “affiliate” to simplify that definition.
The Act defines the term “companion” broadly to account both for the recent past
variation among the states in recognition of same-sex marriage and future uncertainty regarding
the prevalence of domestic partnerships and civil unions in the wake of the Supreme Court’s
decision in Obergefell v. Hodges, 135 S. Ct. 2584 (2015), recognizing a right to same-sex
marriage under the U.S. Constitution.
3. “Court.” The Act defines the term to refer to the court of general equity jurisdiction
within the state.
4. “Executory contract.” The Act defines the term to include an unexpired lease. The
definition is similar to the one contained in the Minnesota receivership statute, Minn. Stat. Ann.
§ 576.21(d), but with a slight modification to track the traditional “Countryman” formulation of
the term more precisely. See, e.g., Countryman, Executory Contracts in Bankruptcy: Part I, 57
Minn. L. Rev. 439, 460 (1973) (executory contract is one under which the obligation of both
parties “are so far unperformed that the failure of either to complete performance would
constitute a material breach excusing the performance of the other”).
5. “Governmental unit.” In this Act, the term “governmental unit” is used to describe state
or municipal entities capable of exercising regulatory and police powers. See Minn. Stat. Ann. §
576.21(t).
6. “Lien.” The Act defines “lien” to include any voluntary and involuntary interest in
property securing an obligation, and includes a security interest.
7. “Mortgage.” The Act defines “mortgage” to mean any record, however denominated,
that creates a security interest in real property. The term includes a deed of trust, a deed to
secure debt, and an assignment of rents and leases. It also includes an installment land contract in
a state that treats an installment land contract as creating a security interest.
8. “Mortgagee.” The Act defines the term to include any person holding a mortgage. The
term includes an assignee of rents.
9. “Mortgagor.” The Act defines “mortgagor” to mean the person granting a mortgage and
any successor owner of the mortgaged real property. The term includes an assignor of rents. 14
10. “Owner.” The Act defines “owner” to mean the person over whose property the receiver
is appointed.
11. “Person.” The Act uses the standard ULC definition.
12. “Proceeds.” The Act defines proceeds in a fashion consistent with its definition under
Uniform Commercial Code § 9-102(a)(64).
13. “Property.” The Act defines the term broadly to include all legally-recognized interests.
“Personal property” includes both tangible and intangible property.
14. “Receiver.” The definition derives from Minn. Stat. Ann. § 576.21(p).
15. “Receivership.” The definition derives from Minn. Stat. Ann. § 576.21(q).
16. “Receivership property.” The definition derives from Minn. Stat. Ann. § 576.21(r). The
term encompasses all property that is described in the order appointing the receiver, any
subsequent order of the court, and all rents and proceeds of that property.
17. “Record.” The Act uses the media-neutral term “record” as a noun to include both
written and electronic documents. The limitation of the definition to use of “record” as a noun
avoids confusion due to the customary use of the term “record” as a verb in real estate practice.
18. “Rents.” This definition is largely identical to the definition used in the Uniform
Assignment of Rents Act, and refers to sums that are payable (but not yet paid) on account of the
right to occupy land. Once those sums have been paid by the occupier or on the occupier’s
account, the sums paid constitute “proceeds” of receivership property as defined in § 2(12).
Because this Act’s scope exclusion for residential property depends on whether the
resident is collecting rents from a non-affiliate, the definition of “rents” delineates the Act’s
scope with clarity. Likewise, the definition is needed because the owner’s failure to turn over
rents that a mortgagee is entitled to collect provides grounds for the appointment of a receiver
under § 6(b).
19. “Secured obligation.” The Act uses this term, which is commonly used in other real
estate-related acts, see, e.g., Uniform Assignment of Rents Act § 2(13); Uniform Residential
Mortgage Satisfaction Act § 102(15), rather than the term “mortgage debt.”
20. “Security agreement.” The Act uses this term to include any agreement that creates or
provides for a lien. The term includes a mortgage as defined in Section 2(7).
21. “Sign.” The Act uses the media-neutral version of the term commonly used in other
recent Uniform Acts.
22. “State.” The Act uses the standard ULC definition. 15
SECTION 3. NOTICE AND OPPORTUNITY FOR HEARING.
(a) Except as otherwise provided in subsection (b), the court may issue an order under
this [act] only after notice and opportunity for a hearing appropriate in the circumstances.
(b) The court may issue an order under this [act]:
(1) without prior notice if the circumstances require issuance of an order before
notice is given;
(2) after notice and without a prior hearing if the circumstances require issuance
of an order before a hearing is held; or
(3) after notice and without a hearing if no interested party timely requests a
hearing.
Comment
1. Principles of due process and fairness in judicial administration require that persons
affected by a receivership should have notice and an opportunity to be heard before a final
determination of their legal rights and responsibilities. However, because receivership is a
flexible remedy based in equity, it is not appropriate to require a uniform type of notice, a
uniform duration of notice, or a hearing prior to every determination made in the administration
of a receivership.
Consistent with due process requirements, Section 3(a) incorporates the idea that any
court order under this Act—from the order appointing the receiver to the order discharging the
receiver—may be made only “after notice and opportunity for a hearing.” Section 3(a) expresses
this concept, however, in a flexible fashion that permits the court to require notice and
opportunity for a hearing that is appropriate in the particular circumstances.
For example, when a receiver proposes to sell property free and clear of liens under
Section 16, there are no plausible circumstances that would require such a sale to occur without
notice to interested persons and without the opportunity for a hearing at which a party objecting
to the sale may be heard as to the basis for the party’s objection. Thus, a court should not issue
an order approving such a sale without prior notice to interested persons and the actual conduct
of a hearing on the proposed merits of the sale terms.
By contrast, in many circumstances, such as when the court is approving a routine
periodic report by the receiver, the court might require prior notice to interested persons, but
might indicate that no hearing would be held before the court’s entry of the order unless an
interested party requested a hearing in a timely fashion. 16
The Act does not dictate a particular time period for the conduct of a hearing following
notice, but leaves such procedural matters to the state’s existing court rules and procedures.
2. Section 3 recognizes the possibility that in some circumstances, a court might enter an
order appointing or directing a receiver on an ex parte basis (without prior notice). The Act does
not list all of the circumstances in which an interested party can obtain ex parte relief, and any
attempt to provide a comprehensive list would undoubtedly fail to foresee some circumstance in
which ex parte relief would be justified. Instead, Section 3 makes clear that an ex parte order is
appropriate only if the circumstances require that the court issue an order before notice can be
given or a hearing held. As a matter of best practices, the order appointing the receiver should
specify the particular circumstances justifying ex parte relief.
In cases of ex parte appointment, principles of due process require that notice be given
after the order is entered and that prompt opportunity for a post-order hearing be provided. See,
e.g., Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974). Thus, for example, if the court orders the
appointment of a receiver for mortgaged property on an ex parte basis, without prior notice to the
mortgagor or the opportunity for a hearing prior to appointment, the court’s order should identify
the particular circumstances justifying ex parte relief, and the court should conduct a hearing
within a reasonable time to determine whether appointment of the receiver was justified.
In the context of requests for ex parte appointment of a receiver, the court must consider
Section 3 in conjunction with Section 6. First, Sections 6(a) and (b) set forth the standards
justifying the appointment of a receiver, including the effect of a contractual agreement in a
mortgage under which the mortgagor consented to the appointment of a receiver following
default. Second, Section 6(c) permits the court to require a party seeking ex parte appointment of
a receiver to post a bond in an amount specified by the court to protect the owner against damage
suffered by the owner if the court determines following a post-appointment hearing that
appointment of the receiver was improvident.
SECTION 4. SCOPE; EXCLUSIONS.
(a) Except as otherwise provided in subsection (b) or (c), this [act] applies to a
receivership for an interest in real property and any personal property related to or used in
operating the real property.
(b) This [act] does not apply to a receivership for an interest in real property improved
by one to four dwelling units unless:
(1) the interest is used for agricultural, commercial, industrial, or mineral-
extraction purposes, other than incidental uses by an owner occupying the property as the
owner’s primary residence; 17
(2) the interest secures an obligation incurred at a time when the property was
used or planned for use for agricultural, commercial, industrial, or mineral-extraction purposes;
(3) the owner planned or is planning to develop the property into one or more
dwelling units to be sold or leased in the ordinary course of the owner’s business; or
(4) the owner is collecting or has the right to collect rents or other income from
the property from a person other than an affiliate of the owner.
(c) This [act] does not apply to a receivership authorized by law of this state other than
this [act] in which the receiver is a governmental unit or an individual acting in an official
capacity on behalf of the unit [except to the extent provided by the other law].
(d) This [act] does not limit the authority of a court to appoint a receiver under law of
this state other than this [act].
(e) Unless displaced by a particular provision of this [act], the principles of law and
equity supplement this [act].
Legislative Note: In many states, there are statutes under which a governmental unit or official
may be appointed as a receiver for an organization such as a hospital, insurance company, or
other organization affected with a public interest. This act generally would not govern the
receivership, but the bracketed language at the end of subsection (c) would permit a state to
modify its existing receivership statute to incorporate some or all provisions of this act.
Comment
1. Subsection (a) provides that except to the extent Section 4 otherwise limits, the Act
governs receivership of real property and any personal property that is related to the real property
or used in its operation. Thus, for example, if the mortgagee of real estate used by the mortgagor
as a hotel sought the appointment of a receiver following the mortgagor’s default, the court could
appoint a receiver under this Act for both the real estate and any personal property of the owner
used in the operation of the hotel (e.g., furnishings, food/beverage inventories, franchise
agreement, and accounts receivable). In a receivership for an owner engaged in farming
operations on land, the court could appoint a receiver for the owner’s interest in the land,
growing crops, farm equipment, and other farm products. Likewise, owners of natural resource
development projects often finance their operations through large credit facilities which include
real property collateral (the mineral estate and/or the surface estate), personal property collateral,
and fixtures. The court could appoint a receiver under this Act for all of the real and personal 18
property assets the owner used in or related to operating such a project.
If mineral rights have not been severed from the surface estate, appointment of a receiver
for the surface estate would include the unsevered mineral rights. If mineral rights have been
severed and the court appoints a receiver for the owner of the mineral rights, the receivership
property would include the mineral rights, but would include no rights in the surface estate other
than easement or other use rights associated with ownership of the mineral rights. In such a case,
the receiver (subject to express direction from the court) either could exploit the mineral rights or
market and sell the mineral rights using the receiver’s power under Section 16 of this Act.
2. Subsection (b) provides the Act’s primary scope exclusion. In general, the Act is intended
to apply to property that is “commercial” in nature. This does not mean that the Act cannot apply
to “residential” property. Any dichotomy between “commercial” and “residential” property is
essentially false. Not only can parcels of land be subject to mixed uses, but if property is
occupied by someone other than its owner, property that is “residential” from the perspective of
the tenant is essentially commercial property in the hands of its owner (e.g., the landlord).
Section 4(b) thus establishes the scope of this Act based on a different dichotomy, distinguishing
between commercial property (appropriately subject to this Act) and consumer property (to
which this Act would not apply).
For this reason, subsection (b) provides that under this Act, the court may not appoint a
receiver for an interest in real property improved with one to four dwelling units, unless (1) the
interest is used for agricultural, commercial, industrial, or mineral extraction purposes, other than
incidental uses by an owner occupying the property as the owner’s primary residence; (2) the
interest secures an obligation incurred at a time when the property was used or planned for use
for agricultural, commercial, industrial, or mineral extraction purposes; (3) the owner planned or
is planning to develop the property into one or more dwelling units to be sold or leased in the
ordinary course of the owner’s business; or (4) the owner is collecting or has the right to collect
rents or other income from the property from a person other than an affiliate of the owner.
Property that is improved by one to four dwelling units, but falls into one of these four
categories, is essentially “commercial” in nature and thus is covered by this Act.
The following examples demonstrate the application of subsection (b):
Example 1. Henning owns a 25-unit apartment building subject to a mortgage in favor of
Bank. Henning goes into default on the mortgage, and Bank seeks the appointment of a
receiver. If the circumstances justify the appointment of a receiver under the standards in
Section 6, the court may appoint a receiver under this Act. Because the land is improved
by more than four dwelling units, subsection (b)’s scope limitation does not apply.
Example 2. Henning owns 640 acres of farmland subject to a mortgage in favor of Bank.
Henning grows corn and soybeans on the land as part of a farming operation, and lives in
a single-family home located on the land. Henning goes into default on the mortgage, and
Bank seeks the appointment of a receiver. If the circumstances justify the appointment of
a receiver under the standards in Section 6, the court may appoint a receiver under this
Act. Although Henning occupies the property as his personal residence, he uses it for 19
agricultural purposes that are not incidental to his residential occupancy within the
meaning of subsection (b)(1).
Example 3. Henning owns 640 acres of farmland subject to a mortgage granted to Bank
at a time when Henning grew corn and soybeans on the land as part of a farming
operation, and lives in a single-family home located on the land. Henning goes into
default on the mortgage after ceasing farming operations, and Bank seeks the
appointment of a receiver. If the circumstances justify the appointment of a receiver
under the standards in Section 6, the court may appoint a receiver under this Act.
Although Henning occupies the property as his personal residence, he used it for non-
incidental agricultural purposes at the time he granted the mortgage to Bank. Thus, under
subsection (b)(2), the property does not fall within the general scope exclusion for
property improved by one to four dwelling units.
Example 4. Henning owns and occupies a single-family home on 5 acres of land, subject
to a mortgage in favor of Bank. On the land, Henning maintains a garden in which he
grows vegetables for the consumption of his family and friends. Henning goes into
default on the mortgage, and Bank seeks the appointment of a receiver. The court may
not appoint a receiver under this Act. Henning occupies the home as his personal
residence, and his agricultural activity is incidental to his residential use within the
meaning of subsection (b)(1).
Example 5. Henning owns an unoccupied single-family home on one acre of land,
subject to a mortgage in favor of Bank. Henning goes into default on the mortgage, and
Bank seeks the appointment of a receiver. The court may not appoint a receiver under this
Act. Although Henning does not occupy the property as his personal residence, it does
not fall into any of the four categories articulated in subsection (b) and is thus
“residential” in nature (even if not currently subject to residential use).
Example 6. Same as Example 5, except that the home is occupied by Gabriel, an
unrelated friend to whom Henning leased the home for an agreed rental of $1,000/month.
If the circumstances justify the appointment of a receiver under the standards in Section
6, the court may appoint a receiver under this Act. Although Gabriel’s use of the home is
residential in nature, Henning’s right to collect rents from Gabriel is commercial activity
that brings the property within the intended scope of this Act. Thus, under subsection
(b)(4), the property does not fall within the general scope exclusion for property
improved by one to four dwelling units.
Example 7. Same as Example 5, except the home is occupied by Henning’s son Andrew,
to whom Henning leased the home for an agreed rental of $500/month. The court may not
appoint a receiver under this Act. Even though Henning has a right to collect rents from
Andrew, his doing so in the context of a family transaction is not “commercial” activity
within the intended scope of the Act.
Example 8. Henning owns a 20-acre parcel of undeveloped land, subject to a mortgage
in favor of Bank. Henning goes into default on the mortgage, and Bank seeks the 20
appointment of a receiver. If the circumstances justify the appointment of a receiver
under the standards in Section 6, the court may appoint a receiver under this Act.
Because the land is not improved by any dwelling unit (and thus is not residential in
nature), subsection (b)’s scope limitation does not apply.
Example 9. Same as example 8, except that Henning acquired the land with the specific
intent of eventually building a home on the land that he would occupy in his retirement.
If the circumstances justify the appointment of a receiver under the standards in Section
6, the court may appoint a receiver under this Act. Because the land is not currently
improved by a dwelling unit (and thus is not residential in nature), notwithstanding
Henning’s future intent to use the land for residential purposes, subsection (b)’s scope
limitation does not apply.
Example 10. Henning owns 1000 acres of land, subject to a mortgage in favor of Bank.
Henning subdivided the property and began constructing homes for sale, but the
development failed and Henning defaulted after completing only two homes. Henning
goes into default on the mortgage, and Bank seeks the appointment of a receiver. If the
circumstances justify the appointment of a receiver under the standards in Section 6, the
court may appoint a receiver under this Act. Even though the land is improved with only
two dwelling units, Henning’s development is clearly commercial in character. Thus,
under subsection (b)(3), the property does not fall within the general scope exclusion for
property improved by one to four dwelling units.
Example 11. Henning owns a parcel of land, subject to a mortgage in favor of Bank, on
which he built a “spec” home that remains unsold. Henning goes into default on the
mortgage, and Bank seeks the appointment of a receiver. If the circumstances justify the
appointment of a receiver under the standards in Section 6, the court may appoint a
receiver under this Act. Even though the land is improved with only one dwelling unit,
Henning’s development of the land is commercial in nature. Thus, under subsection
(b)(3), the property does not fall within the general scope exclusion for property
improved by one to four dwelling units.
Example 12. Same as Example 11, except that Henning moves into the home and
occupies it as a residence while trying to sell it. If the circumstances justify the
appointment of a receiver under the standards in Section 6, the court may appoint a
receiver under this Act. Under subsection (b)(1), Henning’s continuing attempts to sell
the property constitute a commercial use within the intended scope of this Act, despite his
temporary occupation of the property as a residence. Likewise, under subsection (b)(3),
because Henning originally constructed the home for sale in the ordinary course,
Henning’s development of the land is commercial in nature. Thus, the property does not
fall within the general scope exclusion for property improved by one to four dwelling
units.
Example 12 demonstrates the general principle that under this Act, if a person owns land
that is within the scope of this Act, that person cannot simply remove the land from the scope of
this Act merely by moving onto the land and beginning to occupy it as a residence. 21
Example 13. Henning owns and occupies a home on one acre of land subject to a
mortgage in favor of Bank. Henning supports himself on his profits from “day trading,”
buying and selling stocks for his personal portfolio. He engages in his day trading
activities on the internet from one of the bedrooms in the home. Henning defaults on the
mortgage, and Bank seeks the appointment of a receiver. The court may not appoint a
receiver under this Act. The land is improved by one dwelling unit, and Henning’s day-
trading activities should be considered incidental to his occupancy of the home as his
primary residence within the meaning of subsection (b)(1).
For purposes of subsection (b)(4), an owner “has the right to collect rents or other
income” only if the owner has a legally enforceable agreement (e.g., a lease, license, or other
form of occupancy agreement) under which another person has the right to occupy the property.
Example 14. Henning owns a vacation home subject to a mortgage in favor of Bank.
Henning owns the vacation home for the exclusive use of himself, his family, and his
guests (from whom he collects no rent). Henning defaults on the mortgage, and Bank
seeks the appointment of a receiver. The court may not appoint a receiver under this Act.
The land is improved by one dwelling unit; further, Henning has not entered into any
occupancy agreements and does not have the “right to collect rents” within the meaning
of subsection (b)(4). Thus, the land is not commercial in character and does not fall
within the intended scope of the Act.
Example 15. Same facts as Example 14, except that Henning rents the house (to persons
unrelated to him) for one-week rentals during periods in which Henning is not using the
home. If the circumstances justify the appointment of a receiver under the standards in
Section 6, the court may appoint a receiver under this Act. Although the land is improved
by one dwelling unit, Henning has the right to collect rents from nonaffiliates within the
meaning of subsection (b)(4). Thus, his use of the property is commercial in nature and
brings the property within the intended scope of the Act.
It is possible that the owner of a building containing two, three, or four dwelling units can
occupy one of the units as his or her primary residence while leasing the other unit(s). Under
subsection (b)(4), if the owner leases the other unit(s) to nonaffiliates, the owner’s use of the
property is generally commercial in nature and is thus within the intended scope of the Act.
Example 16. Henning owns a duplex subject to a mortgage in favor of Bank. He
occupies one of the units as his personal residence and leases the other unit to his friend
Gabriel at an agreed rent of $1000. Henning and Gabriel are not related. Henning defaults
on the mortgage and Bank seeks the appointment of a receiver. If the circumstances
justify the appointment of a receiver under the standards in Section 6, the court may
appoint a receiver under this Act. Although the land is improved by two dwelling units
and Henning occupies one unit as his primary residence, Henning has the right to collect
rent from Gabriel within the meaning of subsection (b)(4), bringing the property within
the intended scope of this Act.
As Example 16 demonstrates, the court may appoint a receiver for a duplex, triplex, or quadplex 22
in which the owner occupies one unit as the owner’s primary residence and leases out the other
unit(s). In such a case, while this Act does authorize the court to appoint a receiver for the entire
building, the Act does not address whether the receiver may eject the owner from occupancy of
the owner’s unit during the receivership, or charge the owner rent for the owner’s continued
occupation of the unit. The Act leaves resolution of these questions to other applicable law. See,
e.g., Restatement (Third) of Property: Mortgages § 4.3, comment d (receiver “may not collect
rent or a use or occupancy charge from a mortgagor who actually occupies the premises and is
personally liable on the mortgage obligation”).
3. The exclusion of residential property from the Act does not mean that a court could never
appoint a receiver for such a property. Instead, the exclusion in subsection (b) means only that
this Act may not be used to be appoint a receiver. A court could appoint a receiver for such
residential property under other state law, if other state law would permit appointment of a
receiver for residential property under the circumstances. For this reason, subsection (d) makes
clear that this Act does not provide the exclusive basis by which a court may appoint a receiver.
Further, the mere fact that land is within the scope of this Act does not justify the
appointment of a receiver. The court should appoint a receiver for property within the scope of
this Act only if the court concludes that the standards for appointment in Section 6 have been
satisfied.
4. Subsection (c) addresses the relationship of this Act to existing statutory regimes for the
appointment of receivers for certain entities. See, e.g., N.H. Rev. Stat. § 401-B:11 (authorizing
receivership of an insurance company). The provisions of this Act do not apply to appointment
of a receiver under an existing statutory regime, except to the extent that the other statutory
regime or other law so provides. The bracketed language in subsection (c), by requiring the
authorization to come from other law, reflects that the Act does not by itself authorize courts to
apply the provisions of the Act by analogy to cases outside the Act’s scope.
SECTION 5. POWER OF COURT . The court that appoints a receiver under this [act]
has exclusive jurisdiction to direct the receiver and determine any controversy related to the
receivership or receivership property.
Legislative Note: This section is appropriate in a state where a court in one county, circuit, or
district may issue orders with statewide effect and has the power to act on property located in
another county, circuit, or district within the state. In a state where a court in one county, circuit,
or district may appoint a receiver but an order entered by the court in that county, circuit, or
district lacks statewide effect, the state should modify this section to make clear that an order of
a court appointing a receiver under this act has statewide effect. 23
Comment
1. Section 5 provides a statement of the court’s powers in the context of a receivership. It is
a substantial adaptation of Minnesota’s receivership statute, Minn. Stat. Ann. § 576.23. Under
this section, the court has the authority to determine all controversies relating to the collection,
preservation, improvement, disposition and distribution of receivership property, as well as all
matters arising in or relating to the receivership, the receivership property, the exercise of the
receiver’s powers, or the performance of the receiver’s duties. See also Wash. Rev. Code Ann. §
7.60.055(1).
Section 5 focuses only on the court’s exclusive judicial authority over the receiver and
the receivership property. Section 5 does not displace the exercise of legitimate police powers
over the receiver or receivership property.
2. In some circumstances, a creditor may ask a court to appoint a receiver for an owner with
property located in multiple states. For example, suppose Bank holds mortgages on Owner’s
farm, which is located on contiguous parcels, one located in State A and the other in State B. At
Bank’s request, State A appoints a receiver under this Act. Section 5 of this Act does not
authorize the receiver appointed to take possession and control of the portion of the farm located
in State B, even if the order appointing the receiver nominally identifies the entire farm as
receivership property. If a court appoints a receiver in State A and the receiver wants to take
possession and control of property located in State B, the receiver must obtain appointment as an
ancillary receiver in State B. Section 12(a)(8) makes clear that the receiver has the power under
this Act to seek appointment as an ancillary receiver for property located in another state.
Likewise, at the time a receiver is appointed in this state, there could be pending litigation
in another state involving the owner or the owner’s property. Section 5 does not expand the
court’s subject matter jurisdiction to permit the court to direct a court of another jurisdiction in
the resolution of pending litigation. Section 5 does, however, give the court the exclusive
jurisdiction to direct the receiver as to how the receiver can or should respond to pending
litigation in another state that might be relevant to the receivership.
3. In at least one state (Kentucky), while there is existing ancient case law that does confirm
that the court may empower a receiver to act with respect to receivership property located
anywhere within the boundaries of the same state, some judges nevertheless hesitate to recognize
a receiver’s ability to act outside the county in which he or she was appointed without express
statutory authority. As reflected in the Legislative Note, in states where certain county, district,
or circuit courts lack the ability to issue orders with statewide effect, Section 5 should be revised
to permit a court’s orders in receiverships covered by this Act to have statewide effect.
4. This Act does not address the extent to which a person has a right to jury trial in the
resolution of a controversy pending in the receivership court. The Act leaves this question to
other applicable law.
24
SECTION 6. APPOINTMENT OF RECEIVER.
(a) The court may appoint a receiver:
(1) before judgment, to protect a party that demonstrates an apparent right, title, or
interest in real property that is the subject of the action, if the property or its revenue-producing
potential:
(A) is being subjected to or is in danger of waste, loss, dissipation, or
impairment; or
(B) has been or is about to be the subject of a voidable transaction;
(2) after judgment:
(A) to carry the judgment into effect; or
(B) to preserve nonexempt real property pending appeal or when an
execution has been returned unsatisfied and the owner refuses to apply the property in
satisfaction of the judgment; [or]
(3) in an action in which a receiver for real property may be appointed on
equitable grounds[; or
(4) during the time allowed for redemption, to preserve real property sold in an
execution or foreclosure sale and secure its rents to the person entitled to the rents].
(b) In connection with the foreclosure or other enforcement of a mortgage, [a mortgagee
is entitled to appointment of][the court may appoint] a receiver for the mortgaged property if:
(1) appointment is necessary to protect the property from waste, loss, transfer,
dissipation, or impairment;
(2) the mortgagor agreed in a signed record to appointment of a receiver on
default; 25
(3) the owner agreed, after default and in a signed record, to appointment of a
receiver;
(4) the property and any other collateral held by the mortgagee are not sufficient
to satisfy the secured obligation;
(5) the owner fails to turn over to the mortgagee proceeds or rents the mortgagee
was entitled to collect; or
(6) the holder of a subordinate lien obtains appointment of a receiver for the
property.
(c) The court may condition appointment of a receiver without prior notice under Section
3(b)(1) or without a prior hearing under Section 3(b)(2) on the giving of security by the person
seeking the appointment for the payment of damages, reasonable attorney’s fees, and costs
incurred or suffered by any person if the court later concludes that the appointment was not
justified. If the court later concludes that the appointment was justified, the court shall release
the security.
Legislative Note: Subsection (a)(4) permits the court to appoint a receiver for the property and
its rents during the redemption period. It would be appropriate in a state that provides a post-
sale statutory redemption right.
Subsection (b) includes bracketed alternatives. Under the first, a mortgagee is entitled to
appointment of a receiver in the six circumstances listed in subsection (b). Under the second,
these six circumstances would justify appointment of a receiver, but appointment would be
subject to the court’s discretion rather than an entitlement. Under Section 7 of the Uniform
Assignment of Rents Act (UARA), an assignee of rents is entitled to appointment of a receiver
under the circumstances expressed in subsection (b). Thus, in a jurisdiction that has enacted
UARA, subsection (b) should use the first bracketed alternative to avoid the risk that adoption of
this act might create an implied repeal of UARA Section 7. Even if a jurisdiction has not adopted
UARA, it may still wish to enact the first bracketed alternative.
Comment
1. Historically, courts treated the appointment of a receiver as “an equitable remedy and not
a substantive right.” 1 Clark on Receivers, § 46, at 48 (3d ed. 1959). As the Clark treatise stated: 26
The appointment of a receiver is the means and not the end. . . . Before a court will
appoint a receiver the litigant must bring a proper suit before the court and claim a
substantive right has been violated, and the court at its discretion appoints a receiver to
preserve the res in order that it may respond to the adjudication by the court concerning
the substantive right claimed by the party asking for a receiver. The appointment of a
receiver in itself determines no substantive right.
Id. § 48, at 52. As such, courts traditionally held that there was no specific right to the
appointment of a receiver, as the power of appointment “is a delicate one … to be exercised with
great circumspection” by the court, which had to be “satisfied by affidavit or other suitable
evidence that a receiver is necessary to preserve the property, or in exceptional cases administer
the property, having in mind the rights and interests of all parties.” Id. § 49, at 53.
Consistent with this historical approach, section 6(a) describes the types of cases in which
a court may appoint a receiver pursuant to this act, and is based on a compilation of numerous
existing receivership statutes. In each of the situations reflected in subsection (a), the
determination that circumstances exist to justify the appointment of a receiver for the owner’s
property is left to the court’s discretion.
Subsection (a)(3) authorizes the court to appoint a receiver under this Act in cases in
which courts of this state have appointed or may appoint receivers for real property on equitable
grounds. This includes (but is not limited to) the insolvency of the owner of the real property,
whether equitable (i.e., the owner’s inability to pay its debts when due) or in balance-sheet terms
(i.e., when the amount of the owner’s liabilities exceed the value of the owner’s assets).
Subsection (a)(4) is appropriate in states that provide a post-sale statutory redemption
right, and would permit the court to appoint a receiver for the property and its rents during the
redemption period.
2. As the Clark treatise explained, courts traditionally held that “[s]ince no litigant can force
a judge to do a judicial act … no litigant has an absolute right to have the court take another’s
property into its custody by the appointment of a receiver.” 1 Clark on Receivers, § 48, at 52 (3d
ed. 1959). Nevertheless, it is quite common for mortgage loan documents to contain
“receivership clauses” under which the mortgagor consents to the appointment of a receiver after
default, without regard to whether the mortgaged property is subject to waste or whether it
provides adequate security for repayment of the mortgage debt. Because appointment of a
receiver traditionally was within the court’s equitable discretion, some courts have refused to
appoint a receiver — despite the presence of a receivership clause — in cases where they would
have denied appointment of a receiver otherwise. See, e.g., Dart v. Western Sav. & Loan Ass’n,
438 P.2d 407 (Ariz. 1968); Chromy v. Midwest Fed. Sav. & Loan Ass’n, 546 So.2d 1172 (Fla. Ct.
App. 1989); Sazant v. Foremost Invsts., N.V., 507 So.2d 653 (Fla. Ct. App. 1987) (receivership
clause not binding on court where mortgagor had not committed waste and default did not place
mortgagee at serious risk of noncollection); Gage v. First Fed. Sav. & Loan Ass’n, 717 F. Supp.
745 (D. Kan. 1989); Barclays Bank, P.L.C. v. Davidson Ave. Assocs., Ltd., 644 A.2d 685 (N.J.
Super. Ct. 1994) (receivership clause “usurps the judicial function” and thus violates public
policy). 27
Other courts have treated receivership clauses as presumptively but not conclusively
enforceable. Barclays Bank v. Superior Court, 137 Cal. Rptr. 743 (Cal. Ct. App. 1977);
Riverside Props. v. Teachers Ins. & Annuity Ass’n, 590 S.W.2d 736 (Tex. Ct. App. 1979); Okura
& Co. v. Careau Group, 783 F. Supp. 482 (C.D. Cal. 1991); Wellman Sav. Bank v. Roth, 432
N.W.2d 697 (Iowa Ct. App. 1988).
By contrast, there is significant recent authority supporting the view that a receivership
clause alone provides a sufficient basis to appoint a receiver after the mortgagor’s default. See,
e.g., Bank of America Nat’l Trust & Sav. Ass’n v. Denver Hotel Ass’n Ltd. Partn., 830 P.2d 1138
(Colo. Ct. App. 1992); Fleet Bank v. Zimelman, 575 A.2d 731 (Me. 1990); Metropolitan Life Ins.
Co. v. Liberty Ctr. Venture, 650 A.2d 887 (Pa. Super. Ct. 1994); Federal Home Loan Mortg.
Corp. v. Nazar, 100 B.R. 555 (D. Kan. 1989). Likewise, federal courts have routinely held
receivership clauses in federally insured mortgages sufficient to justify the appointment of a
receiver. See, e.g., United States v. Berk & Berk, 767 F. Supp. 593 (D. N.J. 1991); United States
v. Drexel View II, Ltd., 661 F. Supp. 1120 (N.D. Ill. 1987).
Consistent with this recent authority, both the Restatement (Third) of Property:
Mortgages and the Uniform Assignment of Rents Act take the view that a mortgagee/assignee of
rents is “entitled” to the appointment of a receiver if the loan documents contain a clause under
which the mortgagor consented to appointment. Restatement (Third) of Property: Mortgages §
4.3(b); UARA § 7(a). Furthermore, some state statutes explicitly make clear that the mortgagee
is entitled to a receiver following default as a matter of right. See, e.g., Ind. Code § 32-30-5-1
(court “shall” appoint a receiver if “either the mortgagor or the owner of the property has agreed
in the mortgage or in some other writing to the appointment of a receiver”); Minn. Stat. Ann. §
559.17, subd. 2 (if assignment of rents contains receivership clause, “the court shall, without
regard to waste, adequacy of the security, or solvency of the mortgagor, appoint a receiver”);
N.Y. Real Prop. Law § 254(10) (receivership clause “must be construed as meaning that the
mortgagee, his heirs, successors or assigns, in any action to foreclose the mortgage, shall be
entitled, without notice and without regard to adequacy of any security of the debt, to the
appointment of a receiver of the rents and profits of the premises covered by the mortgage”); N.
Mex. Stat. Ann. § 44-8-4(A) (court “shall appoint a receiver in an action by a mortgagee or
secured party … where such mortgage, security agreement, contract or other written agreement
provides for the appointment of a receiver”).
Consistent with this recent trend, the first bracketed alternative in subsection (b) tracks
the comparable provision of § 7 of the Uniform Assignment of Rents Act. Under this alternative,
a person seeking appointment of a receiver is entitled to a receiver as a matter of right in a
proceeding to foreclosure a mortgage or enforce an assignment of rents if one or more of the
following conditions exists: (1) appointment is necessary to protect the mortgaged property or
rents arising from the property from waste, loss, transfer, or dissipation; (2) the loan documents
contain a receivership clause; (3) the owner otherwise consents; (4) the property’s value is not
sufficient to satisfy the secured obligation; (5) the owner has failed to turn over rents that the
creditor is entitled to collect; or (6) a subordinate creditor has obtained the appointment of a
receiver for the property. Under the second bracketed alternative, the presence of one or more of
these six factors is grounds for appointment in the court’s discretion. The Legislative Note
makes clear that in jurisdictions that have enacted the Uniform Assignment of Rents Act, the 28
state should make certain that Section 6(b) adopts the “matter of right” alternative, so as to avoid
any possibility that the enactment of this Act might work an implied repeal of the provisions of
UARA Section 7. Likewise, in states in which statutory law or case law makes appointment of a
receiver mandatory in certain cases involving mortgage enforcement, the first bracketed
alternative should be adopted to facilitate the Act’s consistency with existing state law. Even a
state that currently has no rule of law making the appointment of a receiver mandatory in some
cases nevertheless may choose to enact the first bracketed alternative.
3. Traditionally, the appointment of a receiver was an ancillary remedy sought in the
context of a pending court proceeding. See, e.g., 1 Clark on Receivers § 75, at 106 (3d ed. 1959)
(“An order appointing a receiver … presupposes a pending suit.”). In the context of a mortgage
foreclosure, the need for a pending action (to which the receivership could be ancillary) posed no
obstacle in judicial foreclosure states, as the foreclosing mortgagee could seek the appointment
of a receiver in the foreclosure action. In nonjudicial foreclosure states, however, there might be
no pending action to which a receivership motion could be made on an ancillary basis. In such
states, strict adherence to the traditional approach required the foreclosing mortgagee to bring an
action for specific performance of its assignment of rents before the mortgagee could then file a
motion for the appointment of a receiver.
Subsection (b) authorizes the court to appoint a receiver “in connection with foreclosure
or other enforcement of a mortgage ….” The section permits a mortgagee foreclosing
nonjudicially to petition the court directly for the appointment of a receiver, without having to
institute an entirely separate action for specific performance of an assignment of rents or some
other civil action to which the receivership could serve as an ancillary remedy.
The reference in paragraph (b)(1) to “the mortgaged property” includes proceeds. Thus,
protection against the waste, loss, transfer, dissipation, or impairment of insurance proceeds of
the mortgaged real property can be the basis for the appointment of a receiver.
4. Subsection (c) authorizes (but does not require) the court to condition the ex parte
appointment of a receiver on the giving of security by the person seeking appointment. This
security would protect against damages, fees, and costs incurred or suffered by any person if the
court later concludes that the receiver’s appointment was not justified.
The Act does not require a court to appoint a receiver on an ex parte basis simply because
the loan documents contain the mortgagor’s consent to ex parte appointment. Nevertheless,
Section 3 authorizes the court to appoint a receiver on an ex parte basis if the particular
circumstances justified ex parte appointment, and nothing in this Act bars a court from
concluding that a clause in the mortgage consenting to ex parte appointment would constitute a
relevant “circumstance” justifying ex parte appointment.
SECTION 7. DISQUALIFICATION FROM APPOINTMENT AS RECEIVER;
DISCLOSURE OF INTEREST.
(a) The court may not appoint a person as receiver unless the person submits to the court 29
a statement under penalty of perjury that the person is not disqualified.
(b) Except as otherwise provided in subsection (c), a person is disqualified from
appointment as receiver if the person:
(1) is an affiliate of a party;
(2) has an interest materially adverse to an interest of a party;
(3) has a material financial interest in the outcome of the action, other than
compensation the court may allow the receiver;
(4) has a debtor-creditor relationship with a party; or
(5) holds an equity interest in a party, other than a noncontrolling interest in a
publicly-traded company.
(c) A person is not disqualified from appointment as receiver solely because the person:
(1) was appointed receiver or is owed compensation in an unrelated matter
involving a party or was engaged by a party in a matter unrelated to the receivership;
(2) is an individual obligated to a party on a debt that is not in default and was
incurred primarily for personal, family, or household purposes; or
(3) maintains with a party a deposit account as defined in [U.C.C. Section 9-
102(a)(29)].
(d) A person seeking appointment of a receiver may nominate a person to serve as
receiver, but the court is not bound by the nomination.
Comment
1. Traditionally, the receiver is an independent third party who serves as an officer of the
court and owes a fiduciary duty to the mortgagor and the mortgagee. See, e.g., 1 Clark on
Receivers § 34, at 35 (3d ed. 1959); 1 Nelson, Whitman, Burkhart & Freyermuth, Real Estate
Finance Law § 4.33 (6th ed. Practitioner Treatise 2014). Consistent with this approach, Section 7
requires the receiver’s “independence.” This concept is adapted (with substantial simplification)
from Minnesota’s receivership statute, Minn. Stat. Ann. § 576.26, subdivisions 1 and 3. 30
Existing law in some states permits a court to appoint an interested person as receiver
with the consent of all parties. See, e.g., Okla. Stat. Ann. tit. 12, § 1552. Because significant
abuse might result from the appointment of an interested person as a receiver, this Act requires
the receiver’s independence.
Subsection (a) requires the prospective receiver to provide sworn evidence of its
independence, and subsection (b) sets forth the circumstances that would disqualify a person
from service as a receiver. Subsection (c) makes clear, however, that a person is not disqualified
as a receiver merely because that person has served as a receiver in or is owed compensation
relating to a prior unrelated dispute. Mortgage lenders frequently seek the appointment of a
receiver based on that person’s competent service as receiver in one or more prior transactions;
the principle of independence would be too strict if it prevented a court from appointing such a
person as receiver despite a demonstrated track record of competence and the lack of any other
apparent conflict of interest.
Subsection (c) also makes clear that an individual is not disqualified from service as a
receiver for an owner’s property merely because the receiver is obligated to a creditor of the
owner on a consumer loan that is not in default, or because the receiver maintains a deposit
account with such a creditor. For example, an individual would not be disqualified from serving
as receiver in a case in which Last National Bank is a creditor merely because the receiver’s
home mortgage was originated or is serviced by Last National Bank.
2. In modern commercial practice, it is customary for the person seeking the receiver’s
appointment to nominate a prospective receiver. Subsection (d) contemplates such a practice,
but makes clear that the identity of the receiver is ultimately subject to the court’s discretion. 1
Clark on Receivers, § 48, at 52 (3d ed. 1959) (“the power of determining who the receiver shall
be rests with the court”).
SECTION 8. RECEIVER’S BOND; ALTERNATIVE SECURITY .
(a) Except as otherwise provided in subsection (b), a receiver shall post with the court a
bond that:
(1) is conditioned on the faithful discharge of the receiver’s duties;
(2) has one or more sureties approved by the court;
(3) is in an amount the court specifies; and
(4) is effective as of the date of the receiver’s appointment.
(b) The court may approve the posting by a receiver with the court of alternative
security, such as a letter of credit or deposit of funds. The receiver may not use receivership 31
property as alternative security. Interest that accrues on deposited funds must be paid to the
receiver on the receiver’s discharge.
(c) The court may authorize a receiver to act before the receiver posts the bond or
alternative security required by this section.
(d) A claim against a receiver’s bond or alternative security must be made not later than
[one] year after the date the receiver is discharged.
Legislative Note: Subsection (d) creates a limitation period for a claim against the bond based
on an action by the receiver. The period should be consistent with the state’s limitation period
for obtaining relief from a judgment.
Comment
1. The purpose of the receiver’s bond is to ensure that the receiver faithfully performs the
receiver’s duties, renders a true accounting of receivership property and receivership receipts and
disbursements, and obeys the lawful orders of the court. 1 Clark on Receivers § 119, at 172 (3d
ed. 1959). The bond thus provides a source of recovery for persons harmed by the receiver’s
misfeasance (such as, for example, the receiver’s wrongful disbursement of receivership funds).
Nearly all of the existing state receivership statutes or rules require that the receiver must
post a bond in an amount determined by the court, but provide no specific guidance to the court
with respect to the amount of the bond. See, e.g., Alaska Stat. § 09.40.250; Ariz. R. Civ. Proc.
66(b)(2); Ark. R. Civ. Proc. 66(a); Cal. Code Civ. Proc. § 567(b); Colo. R. Civ. Proc. 66(b);
Idaho Code § 8-604; Ind. Code § 32-30-5-3; Iowa Code Ann. § 680.3; Kan. Stat. Ann. § 60-
1302; Mich. Comp. Laws Ann. § 600.2926; Minn. Stat. Ann. § 576.27; Miss. Code Ann. § 11-5-
159; Mo. Rev. Stat. § 515.250; Mont. Code Ann. § 27-20-301; N.C. Gen. Stat. § 1-504; N.D.
Cent. Code § 32-10-03; Ohio Rev. Code § 2735.03; Okla. Stat. tit. 12, § 1553; R.I. R. Civ. Proc.
66(k); S.D. Codif. Laws § 21-21-8; Tex. Civ. Prac. & Rem. Code § 64.023; Wash. Rev. Code
Ann. § 7.60.045; W.Va. Code § 53-6-1. By contrast, only a few statutes provide some
requirement regarding the size of the bond. See, e.g., Va. Code Ann. § 8.01-587 (bond must be
“sufficient at least to cover the probable amount under [the receiver’s] control in any one year);
Wis. Stat. Ann. § 813.16(6) (bond must be in an amount “sufficient to cover all property likely to
come into the receiver’s hands”).
Under subsection (a), this Act leaves the amount of the receiver’s bond to the discretion
of the judge based on the particular circumstances of the case. Because receivership is by its
nature a flexible remedy, rather than dictate a fixed amount for the bond or an amount calculated
through a mandatory formula, the Act allows the court the flexibility to require bonding in an
amount appropriate to the circumstances of the receivership. If the court is appointing a receiver
for commercial real estate such as an office building or shopping center, for example, best
practices would suggest that the court should require a bond amount based on expected monthly 32
cash flow through the receivership.
2. Although it is not a common practice for receivers to post alternative security, subsection
(b) permits the court to approve the posting of alternative security (such as a letter of credit or
deposit of funds) in lieu of a bond. The receiver may not use receivership property as alternative
security.
3. Although subsection (a) requires that the receiver’s bond must be effective as of the date
of appointment, subsection (c) makes clear that the court may authorize the receiver to act before
the bond (or any alternative security) has been posted with the court.
4. Section 23(b) provides that the court’s approval of the receiver’s final report following
the receiver’s distribution of all receivership property discharges the receiver from further duties
as receiver. However, that discharge does not result in the discharge of the surety on the
receiver’s bond. As the Clark treatise explains:
At the time of discharge of the receiver the court will not vacate his recognizance or bond
even upon the request of all parties, nor shall sureties on the bond be discharged upon
their own request. On the discharge of the receiver the surety is still liable for any default
[the receiver] may have made during the administration of his trust, even though this may
be afterwards discovered. [3 Clark on Receivers § 696(a), at 1282 (3d ed. 1959).]
To provide finality to the surety on the receiver’s bond, subsection (d) provides a one-
year period for filing claims against the bond, and is modeled on a similar provision in Wash.
Rev. Code Ann. § 7.60.045. As the Legislative Note makes clear, the period specified in
subsection (d) should be consistent with the applicable limitations period for obtaining relief
from a judgment.
SECTION 9. STATUS OF RECEIVER AS LIEN CREDITOR . On appointment of a
receiver, the receiver has the status of a lien creditor under:
(1) [U.C.C. Article 9] as to receivership property that is personal property or fixtures;
and
(2) [the recording statute of this state] as to receivership property that is real property.
Comment
As a general rule, on appointment a receiver takes the receivership property subject to all
existing valid liens, priorities, equities, charges and encumbrances. 1 Clark on Receivers, § 269,
at 413 (3d ed. 1959). For this reason, “[p]rior liens are not divested by the appointment of a
receiver in cases in which the lienholders are not parties and have not had their day in court.” Id.
This principle also includes voluntary liens such as security interests, as Clark explains:
33
The appointment of a receiver does not void contracts between the plaintiff and
defendant, neither does it void contracts between the defendant and third parties. It,
therefore, follows that under ordinary circumstances, without a governing statute, a third
person having an interest in the res or a part of the res by reason of a [security interest] is
not deprived of his contractual right by reason of the appointment of a receiver. [Id. §
274.2, at 425.]
Nevertheless, Uniform Commercial Code Article 9 requires that a security interest be
perfected to ensure its priority versus certain third parties (including lien creditors). As a result, a
receiver can assert priority over an unperfected security interest in personal property which the
receiver finds in his possession. Id. § 274.2, at 426.
Consistent with the foregoing, Section 9 (which is a simplified version of Minnesota’s
receivership statute, Minn. Stat. Ann. § 576.30) provides that the receiver has the status of a lien
creditor as to both personal and real property. Under Article 9 of the UCC, the term “lien
creditor” includes “a receiver in equity from the time of appointment.” U.C.C. § 9-
102(a)(52)(D). Section 9 makes clear that a receiver appointed under this Act also has the status
and priority of a “lien creditor” as to personal property under Article 9.
Section 9 of this Act enables the receiver to establish priority not only against subsequent
creditors, but also a prior unperfected secured party, as that unperfected secured party would be
subordinate to a person who acquires the rights of a lien creditor before the conflicting security
interest is perfected. U.C.C. § 9-317(a)(2). Section 9 does not create (and is not intended to
create) an “avoiding power” in the receiver analogous to the strong-arm power exercisable by a
bankruptcy trustee under Bankruptcy Code § 544(a).
Section 9 also gives the receiver the status and priority of a lien creditor under the state’s
recording statute with respect to receivership property that is real property. The application of
Section 9 would produce different results in different states with respect to an unrecorded interest
in real property (such as an unrecorded mortgage). In the majority of states, an unrecorded
mortgage would nevertheless have priority over a subsequent judgment lien. See Stoebuck &
Whitman, The Law of Property § 11.10, at 880-881 (“Often this conclusion is based on the literal
language of the pertinent judgment lien statute, which typically imposes the lien on ‘the
defendant’s real property—not the record property, the courts frequently hold, but the actual
property as depleted by unrecorded conveyances. An alternative basis for the same result is that
the creditor is simply not a ‘purchaser’ in the sense used by the recording statute.”). In a
minority of states, an unrecorded mortgage is subordinate to a subsequent judgment lien, because
the recording statute either explicitly so provides or has been so interpreted by the state’s courts.
See Schleuter Co. v. Sevigny, 564 N.W.2d 309 (S.D. 1997); Solans v. McMenimen, 951 N.E.2d
999 (Mass. Ct. App. 2011); McDuff Estate v. Kost, 158 A. 373 (R.I. 1932).
SECTION 10. SECURITY AGREEMENT COVERING AFTER-ACQUIRED
PROPERTY. Except as otherwise provided by law of this state other than this [act], property
that a receiver or owner acquires after appointment of the receiver is subject to a security 34
agreement entered into before the appointment to the same extent as if the court had not
appointed the receiver.
Comment
Section 10 is adapted from Washington’s receivership statute, Wash. Rev. Code Ann. §
7.60.240. Section 10 provides that if the owner had entered into a pre-appointment security
agreement covering after-acquired property, that agreement is effective against property acquired
after the receiver’s appointment to the extent provided under other law. By contrast, under
bankruptcy law, the filing of a bankruptcy petition terminates the effectiveness of an after-
acquired property clause contained in any prepetition security agreement entered by the debtor.
11 U.S.C. § 552(a). While this limitation on the effectiveness of an after-acquired property
clause makes sense in the context of bankruptcy, it is not appropriate in the context of many
commercial real estate receiverships that involve operating businesses. Section 10 thus ensures
that the appointment of a receiver should have no impact on the effectiveness of an after-
acquired property clause in a pre-petition security agreement.
As used in Section 10, “property that a receiver … acquires after appointment of the
receiver” is limited to property in which the owner has some interest (i.e., property that is
receivership property), but not property that a receiver acquires in which the owner has no
interest (i.e., property that is not receivership property).
Example 1. Henning owns and operates the Broadway Hotel. Bank holds a recorded
mortgage on the land and a security interest (properly perfected by filing) in all present
and after-acquired inventory and equipment used in the operation of the Broadway Hotel.
At the request of a judgment creditor of Henning, the court appoints Smith as a receiver
for the Broadway Hotel. Smith has significant experience in operating hotels, is
frequently appointed as a receiver for hotels, and at any one time typically is operating
from five to ten hotels as a receiver. In the context of operating the Broadway Hotel as
receiver, Smith acquires a dozen new beds and places them into several of the rooms to
replace existing worn-out beds. The beds constitute “after-acquired equipment” subject to
the Bank’s pre-receivership security agreement.
Example 2. Same as Example 1. Smith acquires a computer for Smith’s use in
accounting, recordkeeping and reporting both as to Smith’s operations of the Broadway
Hotel and as to Smith’s operations of other hotels for which he serves as receiver. To
acquire the computer, Smith uses Smith’s personal funds, not revenues generated from
the operation of the Broadway Hotel. As Henning has no ownership rights in the
computer, Bank has no security interest in the computer pursuant to its pre-receivership
security agreement with Henning.
35
SECTION 11. COLLECTION AND TURNOVER OF RECEIVERSHIP
PROPERTY.
(a) Unless the court orders otherwise, on demand by a receiver:
(1) a person that owes a debt that is receivership property and is matured or
payable on demand or on order shall pay the debt to or on the order of the receiver, except to the
extent the debt is subject to setoff or recoupment; and
(2) subject to subsection (c), a person that has possession, custody, or control of
receivership property shall turn the property over to the receiver.
(b) A person that has notice of the appointment of a receiver and owes a debt that is
receivership property may not satisfy the debt by payment to the owner.
(c) If a creditor has possession, custody, or control of receivership property and the
validity, perfection, or priority of the creditor’s lien on the property depends on the creditor’s
possession, custody, or control, the creditor may retain possession, custody, or control until the
court orders adequate protection of the creditor’s lien.
(d) Unless a bona fide dispute exists about a receiver’s right to possession, custody, or
control of receivership property, the court may sanction as civil contempt a person’s failure to
turn the property over when required by this section.
Comment
1. When a receiver is appointed for commercial real estate, the receiver’s ability to carry out
its duties successfully depends on the receiver’s ability to obtain control over all receivership
property (whether in the hands of the owner or third persons) and to collect accrued but unpaid
rents arising from the real estate. To this end, Section 11 facilitates the ability of the receiver to
gather receivership property and to collect debts that are receivership property.
Subsection (a)(1) facilitates the receiver’s ability to collect debts that constitute
receivership property. The obligor on a debt that is matured, payable on demand, or payable on
order must pay the debt to the receiver on demand, except to the extent that the obligor has a
right of setoff or recoupment under other law. Subsection (a)(1) thus provides the receiver with 36
an ability to collect debts that is comparable to that possessed by a trustee or debtor-in-
possession under Section 542(b) of the Bankruptcy Code, 11 U.S.C. § 542(b).
Subsection (a)(2) obligates anyone in possession, custody, or control of receivership
property to turn that property over to the receiver on demand, unless the court orders otherwise.
Subsection (a)(2) provides a receiver with an ability to compel the turnover of receivership
property that is comparable to that possessed by a trustee or debtor-in-possession under Section
542(a) of the Bankruptcy Code, 11 U.S.C. § 542(a).
2. Subsection (b) provides that a person who owes money to the owner and has notice of the
receiver’s appointment may not satisfy that obligation by paying the owner. The rule established
by subsection (b) is consistent with background principles of commercial law. See, e.g., U.C.C. §
9-406(a) (“[A]n account debtor … may discharge its obligation by paying the assignor until, but
not after, the account debtor receives a notification … that that amount due or to become due has
been assigned and that payment is to be made to the assignee. After receipt of the notification,
the account debtor may discharge its obligation by paying the assignee and may not discharge
the obligation by paying the assignor.”).
Example 1: Henning owns a 10-unit apartment building. Gabriel occupies Unit 1
pursuant to a written lease at a rental of $1,000/month. On April 1, at the request of a
judgment creditor, the court appoints Smith as a receiver for the building. On April 2,
Gabriel pays Henning $1,000 for April rent. On April 3, Gabriel receives a letter from
Smith informing Smith of his appointment and directing Gabriel to pay the $1,000 April
rent directly to Smith. Gabriel’s April 2 payment to Henning discharged his liability for
April rent.
Example 2: Same as Example 1, except that Gabriel receives notice of Smith’s
appointment on April 2 and pays Henning $1,000 on April 3. Gabriel’s April 3 payment
to Henning did not discharge his liability for April rent, and as receiver Smith can enforce
Gabriel’s liability for April rent through applicable legal processes.
Under best practices, a competent receiver will accompany any demand for payment
from a debtor with a copy of the order of appointment, thus making it clear that the debtor has
notice of the receiver’s appointment. Nevertheless, in some cases, a debtor might have “notice”
of the appointment of a receiver within the meaning of subsection (b) even if the person has not
actually received a copy of the order appointing the receiver. If a receiver makes a demand of a
debtor for payment of a debt under Section 11 without having provided the debtor with a copy of
the order or other evidence of its appointment, the debtor may request (and the receiver must
provide) reasonable proof of its appointment. Cf. U.C.C. § 9-406(c).
3. Subsection (c) makes clear that if a creditor holds a lien on receivership property in the
creditor’s possession, custody, or control, and the validity, perfection, or priority of its lien
depends on the creditor’s retention of that possession, custody, or control, the creditor may retain
possession, custody, or control until such time as the court enters an order providing for the
adequate protection of the creditor’s lien. Thus, for example, a creditor with a statutory lien on a
vehicle could retain possession of the vehicle despite a turnover demand by the receiver until the 37
court entered an order preserving the validity of the creditor’s lien on the vehicle (which would
otherwise be lost if the creditor released possession of the vehicle). Section 10 thus avoids the
result of cases such as In re WEB2B Payment Solutions, Inc., 488 B.R. 387 (Bankr. 8th Cir.
2013) (creditor’s turnover of funds in deposit account, without order providing for adequate
protection of creditor’s interest, rendered creditor’s security interest unperfected).
The Act does not specifically define “adequate protection” or specify what constitutes
adequate protection under subsection (c), but leaves this determination to the discretion of the
court based on the circumstances of the case. In general, however, any form of payment or
security that would constitute adequate protection under the Bankruptcy Code, 11 U.S.C. § 361,
would suffice to constitute adequate protection under this Act.
4. Under subsection (d), a person’s failure to turnover receivership property on demand by
the receiver may be sanctioned by the court as contempt unless there is a bona fide dispute with
respect to the receiver’s right to possession, custody, or control of the property.
SECTION 12. POWERS AND DUTIES OF RECEIVER .
(a) Except as limited by court order or law of this state other than this [act], a receiver
may:
(1) collect, control, manage, conserve, and protect receivership property;
(2) operate a business constituting receivership property, including preservation,
use, sale, lease, license, exchange, collection, or disposition of the property in the ordinary
course of business;
(3) in the ordinary course of business, incur unsecured debt and pay expenses
incidental to the receiver’s preservation, use, sale, lease, license, exchange, collection, or
disposition of receivership property;
(4) assert a right, claim, cause of action, or defense of the owner which relates to
receivership property;
(5) seek and obtain instruction from the court concerning receivership property,
exercise of the receiver’s powers, and performance of the receiver’s duties;
(6) on subpoena, compel a person to submit to examination under oath, or to 38
produce and permit inspection and copying of designated records or tangible things, with respect
to receivership property or any other matter that may affect administration of the receivership;
(7) engage a professional as provided in Section 15;
(8) apply to a court of another state for appointment as ancillary receiver with
respect to receivership property located in that state; and
(9) exercise any power conferred by court order, this [act], or law of this state
other than this [act].
(b) With court approval, a receiver may:
(1) incur debt for the use or benefit of receivership property other than in the
ordinary course of business;
(2) make improvements to receivership property;
(3) use or transfer receivership property other than in the ordinary course of
business as provided in Section 16;
(4) adopt or reject an executory contract of the owner as provided in Section 17;
(5) pay compensation to the receiver as provided in Section 21, and to each
professional engaged by the receiver as provided in Section 15;
(6) recommend allowance or disallowance of a claim of a creditor as provided in
Section 20; and
(7) make a distribution of receivership property as provided in Section 20.
(c) A receiver shall:
(1) prepare and retain appropriate business records, including a record of each
receipt, disbursement, and disposition of receivership property;
(2) account for receivership property, including the proceeds of a sale, lease, 39
license, exchange, collection, or other disposition of the property;
(3) file with the [appropriate real property recording office] a copy of the order
appointing the receiver and, if a legal description of the real property is not included in the order,
the legal description;
(4) disclose to the court any fact arising during the receivership which would
disqualify the receiver under Section 7; and
(5) perform any duty imposed by court order, this [act], or law of this state other
than this [act].
(d) The powers and duties of a receiver may be expanded, modified, or limited by court
order.
Comment
1. Existing receivership law in most states does not adequately set forth the powers that a
receiver may (or may not) exercise, either with or without prior approval of the court. This can
result in uncertainty regarding the ability of a receiver to borrow money, to approve or reject
executory contracts entered into by the owner of the property (including unexpired leases), to sell
receivership property either in or outside of the ordinary course of business, or to make
improvements to receivership property. Those adhering to best practices in preparing
receivership orders of appointment typically ensure that the order incorporates the powers
identified in this section, and thus subsections (a) and (b) attempt to incorporate these principles
of best practice into receiverships arising under this Act.
Sections 12(a) and 12(b) derive from a compilation of various subsections of the
Minnesota, Washington, and New Mexico receivership statutes. See, e.g., Minn. Stat. Ann. §
576.29. subd. 1(a), (b); Wash. Rev. Code Ann. § 7.60.060(1); N.M. Rev. Stat. Ann. § 44-8-7(H).
2. Subsection (a) sets forth the general powers that the receiver may exercise as a matter of
the receiver’s default powers, except to the extent that the receivership order or other law
explicitly restricts the receiver. In particular, subsection (a) addresses the receiver’s authority to
sell, lease, license, or otherwise transfer receivership property in the ordinary course of business.
Subsection (a) thus allows the receiver to conduct ordinary course sales (such as sales of
inventory) in the process of operating a business. It also permits the receiver of a partially-
completed condominium project to sell completed units. The draft does not contain a definition
of “ordinary course of business,” but leaves the term to judicial development.
Subsection (a)(6) permits a receiver to compel a person to submit to examination under 40
oath after issuance of a subpoena. However, the Act does not independently create authority in a
receiver to issue a subpoena. If the law of the state other than this Act gives the receiver the
power to issue a subpoena, subsection (a)(9) would permit the receiver to do so.
Subsection (b) sets forth specific powers that the receiver can exercise only if specifically
authorized by the court (following notice and an opportunity for a hearing as prescribed in
Section 3). These powers include the power to sell, lease, license or otherwise transfer
receivership property other than in the ordinary course of business, to make improvements to
receivership property, to adopt or reject executory contracts of the owner, to allow or disallow
claims against the receivership, to pay compensation to professionals, to make distributions of
receivership property, and to incur debt for the use or benefit of receivership property other than
in the ordinary course of business.
Because this Act is intended to facilitate the appointment and operation of receivers in a
variety of different contexts, the Act does not establish specific standards for a court’s approval
of a request by the receiver to borrow outside the ordinary course of business. Subsection (b)(1)
is not intended, however, to give the court a “blank check” to authorize the receiver to borrow
funds and grant the lender of those funds priority over pre-existing liens on receivership
property. Under the weight of existing authority, such “priming loans” are not appropriate in
cases involving the operation of a private business, without the consent of the pre-existing
lienholders, except as necessary to preserve the property. See, e.g., 2 Clark on Receivers, §
470(b), at 772-773 (3d ed. 1959) (collecting cases). Subsection (b)(1) does not displace this
authority.
Whether a receiver’s powers are default powers authorized under subsection (a) or
specific powers granted by the court under subsection (b), section (d) makes clear that the court
may expand, modify, or limit powers previously granted to the receiver. Thus, for example, if the
initial order of appointment did not authorize the receiver to make any improvements to
receivership real property, the court could subsequently (following notice and opportunity for a
hearing as required in Section 3) authorize the receiver to make an improvement that the receiver
believed was necessary in the context of operating the property.
3. Section 12(c), which describes the receiver’s duties, is adapted from Minn. Stat. Ann. §
576.29, subd. (2).
Subsection (c)(2) requires the receiver to “account for” receivership property. This
accounting is evidenced by the receiver’s interim reports (if required by the court) under Section
19 and the final report provided under Section 23. These reports require the receiver to identify
items of receivership property and any dispositions of receivership property. As a party in
interest in the receivership, the owner has the right to receive a copy any reports filed by the
receiver.
Subsection (c)(3) includes a duty for the receiver to record a copy of the order of
appointment in the real estate records in any county in which real property that is receivership
property is located. This Act does not authorize or empower the receiver to record a copy of the
order without payment of the applicable recording fee, but the receiver is authorized to pay the 41
applicable recording fee and to obtain reimbursement of that fee under Section 21.
While Section 12(c)(3) does impose a duty on the receiver to record the order of
appointment in the real estate records, the Act does not specify the effect of the receiver’s failure
to do so or indicate that such a failure would permit a purchaser of the real property without
notice of the receivership to qualify as a bona fide purchaser protected by the state’s recording
act. See, e.g., First Southern Properties, Inc. v. Vallone, 533 S.W.2d 339 (Tex. 1976) (purported
buyer of real estate without notice of receivership did not take title free of receivership under
recording statute, as receivership property was held in custodia legis and could not be transferred
without approval of court). Likewise, Section 12(c)(3) is not intended to effect a change in a
state’s law governing lis pendens. In some states, a lis pendens is triggered immediately when
litigation over title to the land is docketed in the public litigation records, even if no
corresponding notation is made in the real property records. In such a state, the appointment of a
receiver constitutes a lis pendens even if the receiver did not record a copy of the order of
appointment.
Section 12(c) does not articulate specific consequences of a receiver’s failure to carry out
the receiver’s duties. This generality is appropriate, as a receiver’s failure could range from the
trivial (e.g., the receiver’s preparation of an interim report that inadvertently did not disclose the
payment of a bona fide, undisputed debt) to the profound (e.g., the receiver’s misapplication of
receivership funds to the receiver’s personal benefit). Instead, the Act leaves to the discretion of
the court what particular consequences (such as the disallowance of some or all of the receiver’s
fees under Section 21, or the replacement of the receiver under Section 22) would follow from
any particular failure by the receiver.
SECTION 13. DUTIES OF OWNER.
(a) An owner shall:
(1) assist and cooperate with the receiver in the administration of the receivership
and the discharge of the receiver’s duties;
(2) preserve and turn over to the receiver all receivership property in the owner’s
possession, custody, or control;
(3) identify all records and other information relating to the receivership property,
including a password, authorization, or other information needed to obtain or maintain access to
or control of the receivership property, and make available to the receiver the records and
information in the owner’s possession, custody, or control;
(4) on subpoena, submit to examination under oath by the receiver concerning the 42
acts, conduct, property, liabilities, and financial condition of the owner or any matter relating to
the receivership property or the receivership; and
(5) perform any duty imposed by court order, this [act], or law of this state other
than this [act].
(b) If an owner is a person other than an individual, this section applies to each officer,
director, manager, member, partner, trustee, or other person exercising or having the power to
exercise control over the affairs of the owner.
(c) If a person knowingly fails to perform a duty imposed by this section, the court may:
(1) award the receiver actual damages caused by the person’s failure, reasonable
attorney’s fees, and costs; and
(2) sanction the failure as civil contempt.
Comment
1. Section 13 describes the duties of the owner, and derives from the Washington
receivership statute, Wash. Rev. Code Ann. § 7.60.080. Subsection (a)(1) requires the owner to
cooperate fully with the receiver in the administration of the receivership and the receiver’s
performance of its duties. This duty of cooperation includes the duty to take reasonable steps to
assure that third parties in possession, custody, or control of receivership property (or records or
information related to receivership property) comply with the receiver’s efforts to obtain
possession, custody, or control of that property.
Subsection (a)(2) requires the owner to preserve and turn over to the receiver all
receivership property in the owner’s possession, custody, or control. Consistent with the
definition of property in Section 2(13) of this Act, this turnover obligation includes both tangible
and intangible property. Subsection (a)(3) obligates the owner to make available to the receiver
any records related to receivership property and any passwords or authorizations needed to
facilitate the receiver’s access to information regarding receivership property (such as banking or
accounting information, information on websites or electronic databases, or other information in
the hands of third parties).
To facilitate the receiver’s ability to carry out its duties with regard to the receivership
and receivership property, subsection (a)(4) obligates the owner to submit to examination by the
receiver, under oath, regarding the owner’s financial condition, the owner’s actions with regard
to receivership property, and other matters relevant to the receiver’s ability to carry out the
receiver’s duties. The Act leaves to other applicable law the question of whether the receiver has 43
the power to issue subpoenas. If other applicable law grants such power to a receiver, the
receiver may issue a subpoena for an examination of the owner.
2. Subsection (b) makes clear that if the owner is not an individual, the owner’s duties under
this Act extend to any officer, director, member, partner, trustee, or other individual or
nonindividual exercising or having the power to exercise control over the affairs of the owner. In
the context of a receivership involving the property of a publicly-traded corporation, for
example, the owner’s obligation would extend to officers and directors, but not to a shareholder
unless that shareholder held a controlling stake in the corporation.
3. If the owner’s failure to fulfill a duty imposed by this Act causes the receiver to suffer
actual harm, subsection (c) authorizes the court to impose on the owner and award to the receiver
damages, including reasonable attorney’s fees and costs, on account of the owner’s failure. This
permits the court, in appropriate cases, to shift the cost of the owner’s noncompliance from
affected creditors to the owner. For example, if the owner refuses to turn over receivership
property and the receiver has to incur $5,000 in expenses and attorney fees to locate and take
possession of the property, subsection (c) permits the court to impose liability for that amount on
the owner as a sanction for the owner’s noncompliance.
Subsection (c) also recognizes that in appropriate cases, the court may sanction the
owner’s noncompliance as civil contempt. Subsection (c) is not intended, however, to limit the
scope of the court’s equitable powers to address an owner’s noncompliance with any duties
imposed by Section 13. In appropriate circumstances, a court may use other equitable remedies,
such as the imposition of an injunction or a constructive trust, to address an owner’s failure to
comply with its duties under the Act. If the receiver seeks and obtains a recovery under
subsection (c), that recovery is receivership property and not the proceeds of the receiver’s
personal cause of action.
SECTION 14. STAY; INJUNCTION.
(a) Except as otherwise provided in subsection (d) or ordered by the court, an order
appointing a receiver operates as a stay, applicable to all persons, of an act, action, or
proceeding:
(1) to obtain possession of, exercise control over, or enforce a judgment against
receivership property; and
(2) to enforce a lien against receivership property to the extent the lien secures a
claim against the owner which arose before entry of the order.
(b) Except as otherwise provided in subsection (d), the court may enjoin an act, action, 44
or proceeding against or relating to receivership property if the injunction is necessary to protect
the property or facilitate administration of the receivership.
(c) A person whose act, action, or proceeding is stayed or enjoined under this section
may apply to the court for relief from the stay or injunction for cause.
(d) An order under subsection (a) or (b) does not operate as a stay or injunction of:
(1) an act, action, or proceeding to foreclose or otherwise enforce a mortgage by
the person seeking appointment of the receiver;
(2) an act, action, or proceeding to perfect, or maintain or continue the perfection
of, an interest in receivership property;
(3) commencement or continuation of a criminal proceeding;
(4) commencement or continuation of an action or proceeding, or enforcement of
a judgment other than a money judgment in an action or proceeding, by a governmental unit to
enforce its police or regulatory power; or
(5) establishment by a governmental unit of a tax liability against the owner or
receivership property or an appeal of the liability.
(e) The court may void an act that violates a stay or injunction under this section.
(f) If a person knowingly violates a stay or injunction under this section, the court may:
(1) award actual damages caused by the violation, reasonable attorney’s fees, and
costs; and
(2) sanction the violation as civil contempt.
Comment
1. As the Clark treatise on receivership explains, it is customary for the order appointing a
receiver to impose by its express terms an injunction against acts, actions, or proceedings that
could interfere with the receiver’s possession and management of receivership property or the
performance of the receiver’s duties: 45
The order of appointment may properly include an order directed against the
defendant, if an individual and if a corporation against its officers, servants, agents and
employees, ordering each and all of them to deliver up the defendant’s property to the
receiver and enjoining each and all of them from interfering with the control and
possession of the property, and if a corporation, from exercising any privileges or
franchises granted to the corporation. The injunction may go further and enjoin each and
all of them from collecting or receiving any debts due to the defendant, individual or
corporation and from paying out, selling, or transferring any property of the estate
including monies, funds, lands, tenements or effects of any kind whatsoever of the
defendant.
The court may protect its possession and control of property within its territorial
jurisdiction even without a specific injunction. The order of appointment impliedly
enjoins parties to the cause and warns any other person from interfering with the court’s
control and possession. [2 Clark on Receivers, § 625.1(a), at 1024 (3d ed. 1959).]
Consistent with this practice, Section 14 provides that the order of appointment operates as a stay
against any act to obtain possession or control of receivership property (including any attempt to
enforce a judgment against receivership property) and any act to enforce a lien against
receivership property on account of a claim arising before the receivership.
The stay created by Section 14 is narrower in scope than the automatic stay arising in a
bankruptcy proceeding. Section 14 does not prevent the owner from seeking bankruptcy
protection, nor does it prevent other creditors from placing the owner into bankruptcy, even if the
bankruptcy filing would result in an interference with the receiver’s possession, custody, or
control of receivership property. See, e.g., Gilchrist v. GE Capital Corp., 262 F.3d 295 (4th Cir.
2003) (federal court receivership order does not bar creditors from filing involuntary petition
against debtor).
2. Subsection (b) authorizes the court to grant an injunction against an act, action, or
proceeding that is not stayed under subsection (a) as necessary to protect receivership property or
facilitate the administration of the receivership. Subsection (b) is limited, however, to acts,
actions, or proceedings against receivership property, the receiver, or the owner; therefore,
subsection (b) would not authorize the court to stay an action against a guarantor or co-obligor.
3. Subsection (c) permits any person subject to the stay or injunction to apply to the court
for relief from the stay or injunction for cause. An interested person who wishes to seek relief
but is not a party should intervene in the receivership action.
The Act does not define “cause,” but leaves to judicial development the circumstances
that would justify relief. Nevertheless, “cause” under subsection (c) certainly includes the right
of a senior lienholder to obtain the appointment of a receiver under this Act or to proceed with a
foreclosure after default. Under traditional law, rents collected by a receiver appointed at the
request of a junior lienholder could be applied to the reduction of the junior lienholder’s debt
until the senior lienholder took appropriate steps to enforce its right to collect rents. See, e.g.,
Restatement (Third) of Property: Mortgages § 4.5(b). If a junior lienholder obtains the 46
appointment of a receiver for mortgaged property, the court must allow a senior lienholder to
enforce its right to collect rents. Cf. Section 6(b)(6) (appointment of receiver at request of junior
lienholder justifies appointment of receiver at request of senior creditor).
Example 1. Henning owns a parcel of commercial real estate subject to two liens: a
senior mortgage held by First Bank, and a junior mortgage held by Second Bank. Second
Bank obtains the appointment of a receiver. Henning is in default under the First Bank
mortgage, First Bank holds a recorded assignment of rents, and First Bank is entitled to
the appointment of a receiver under the standards in Section 6. While the appointment of
the receiver at the request of Second Bank triggers a stay under subsection (a), First Bank
may request relief from stay to have a receiver appointed its request, and is entitled to
that relief. The court must either appoint a different receiver, or order that any sums
collected by the existing receiver must thereafter be applied to the debt of First Bank.
Example 2. Same as Example 1, except First Bank requests relief from stay to institute a
judicial or (if allowed by applicable law) nonjudicial foreclosure proceeding. The court
should ordinarily grant relief from stay to permit First Bank to foreclose its mortgage in
accordance with otherwise applicable law.
4. Subsection (d) provides a list of exceptions to the stay created by subsection (a) or an
injunction under subsection (b). Subsection (d)(1) makes clear that the stay does not prevent the
creditor who sought appointment of the receiver from foreclosing its mortgage or enforcing its
assignment of rents. Thus, if a mortgagee seeks and obtains the appointment of a receiver for the
mortgaged property, that mortgagee may institute a judicial or (if permitted by applicable law)
nonjudicial foreclosure proceeding without violating the stay.
Subsection (d)(2) protects the ability of a creditor to take appropriate steps to perfect a
lien or maintain the priority of that perfection despite the appointment of a receiver without
having to seek relief from the court. It permits a person with a security interest in receivership
property to perfect that interest following appointment of a receiver. Likewise, it permits a
creditor to file a continuation statement to maintain its perfection so long as that continuation
statement was filed within the applicable period to ensure that the creditor maintained continuous
perfection. Further, it permits a creditor holding a possessory lien on receivership property to
retain possession, as authorized under Section 11(c), until such time as the court enters an order
providing adequate protection of the creditor’s lien. Subsection (d)(2) would also permit a
creditor that had provided labor or materials incorporated into an improvement on receivership
real property, but had not been paid, to take whatever actions are necessary under the applicable
mechanics’ lien statute (including the filing or recording of a notice of lien claim or the
institution of a civil action with the applicable period required to perfect that lien) to ensure the
perfection and priority of that creditor’s mechanics’ lien. Subsection (a), however, would prevent
the mechanics’ lien creditor from conducting a sale of the property to enforce its lien without
first obtaining relief from the stay.
Subsection (d)(3) permits the commencement or continuation of criminal proceedings
against the owner. Subsection (d)(4) permits governmental actors to take actions or enforce
nonmonetary judgments pursuant to police and regulatory powers. Subsection (d)(5) permits a 47
governmental unit to establish a tax liability against the owner or receivership property, but does
not permit the governmental unit to conduct a tax sale of receivership property without obtaining
approval from the court.
5. Subsection (e) permits the court to declare an act void as being in violation of the stay
under subsection (a) or an injunction under subsection (b). This means that an act in violation of
the stay is merely voidable rather than void.
6. Subsection (f) permits the receiver to recover actual damages, including costs and
attorney fees, from a person that knowingly violated the stay or injunction. In addition,
subsection (f) authorizes the court to sanction any knowing violation by civil contempt, without
regard to whether any person suffered actual damages as a result. Subsection (f) is not intended,
however, to limit the scope of the court’s equitable powers to address a violation of the stay or
injunction using other equitable remedies. If the receiver seeks and obtains a recovery under
subsection (f), that recovery is receivership property and not the proceeds of the receiver’s
personal cause of action.
SECTION 15. ENGAGEMENT AND COMPENSATION OF PROFESSIONAL .
(a) With court approval, a receiver may engage an attorney, accountant, appraiser,
auctioneer, broker, or other professional to assist the receiver in performing a duty or exercising
a power of the receiver. The receiver shall disclose to the court:
(1) the identity and qualifications of the professional;
(2) the scope and nature of the proposed engagement;
(3) any potential conflict of interest; and
(4) the proposed compensation.
(b) A person is not disqualified from engagement under this section solely because of the
person’s engagement by, representation of, or other relationship with the receiver, a creditor, or a
party. This [act] does not prevent the receiver from serving in the receivership as an attorney,
accountant, auctioneer, or broker when authorized by law.
(c) A receiver or professional engaged under subsection (a) shall file with the court an
itemized statement of the time spent, work performed, and billing rate of each person that
performed the work and an itemized list of expenses. The receiver shall pay the amount 48
approved by the court.
Comment
1. The receiver’s ability to carry out its duties frequently requires the receiver to obtain the
services of professionals (such as lawyers, accountants, brokers, appraisers, or auctioneers).
Under subsection (a), the receiver must obtain the court’s approval to engage and retain
professionals, but this approval may come in the order of appointment. While subsection (a)
uses the singular (“the receiver may engage an attorney ….”), the Act contemplates that when
the nature of the receivership so demands, the receiver may engage more than one attorney or
more than one other type of professional as needed.
2. Section 15 requires the receiver to disclose any potential conflict of interest that exists
with respect to a professional for whom the receiver seeks appointment. Subsection (b) makes
clear that the court has discretion to approve the engagement of a professional despite the
presence of existing relationships that might be nominal or de minimis conflicts of interest. For
example, the fact that an attorney has previously represented a creditor holding a claim against
the owner in an unrelated matter does not preclude the court from approving the receiver’s
engagement of that attorney. Nevertheless, while subsection (a) acknowledges the court’s
discretion, the court should not approve the engagement of a professional under circumstances
where a serious or substantial conflict of interest exists.
Subsection (b) makes clear that the receiver may provide certain types of professional
services on the receiver’s own behalf, and may be compensated for those services, if the receiver
is licensed to provide those services. See, e.g., Wash. Rev. Code Ann. § 7.60.180(3). A receiver
may serve as an attorney, accountant, auctioneer, or broker, but not as an appraiser. The Act
intentionally omits “appraiser” from this list because dual service as both a receiver and
appraiser involves an inappropriate conflict of interest, particularly in circumstances in which the
receiver seeks approval for the sale of receivership property under Section 16.
3. Subsection (c) makes clear that the receiver cannot pay the fees and expenses of
professionals without first submitting to the court an itemized statement and obtaining court
approval.
SECTION 16. USE OR TRANSFER OF RECEIVERSHIP PROPERTY NOT IN
ORDINARY COURSE OF BUSINESS.
(a) In this section, “good faith” means honesty in fact and the observance of reasonable
commercial standards of fair dealing.
(b) With court approval, a receiver may use receivership property other than in the
ordinary course of business. 49
(c) With court approval, a receiver may transfer receivership property other than in the
ordinary course of business by sale, lease, license, exchange, or other disposition. Unless the
agreement of sale provides otherwise, a sale under this section is free and clear of a lien of the
person that obtained appointment of the receiver, any subordinate lien, and any right of
redemption but is subject to a senior lien.
(d) A lien on receivership property which is extinguished by a transfer under subsection
(c) attaches to the proceeds of the transfer with the same validity, perfection, and priority the lien
had on the property immediately before the transfer, even if the proceeds are not sufficient to
satisfy all obligations secured by the lien.
(e) A transfer under subsection (c) may occur by means other than a public auction sale.
A creditor holding a valid lien on the property to be transferred may purchase the property and
offset against the purchase price part or all of the allowed amount secured by the lien, if the
creditor tenders funds sufficient to satisfy in full the reasonable expenses of transfer and the
obligation secured by any senior lien extinguished by the transfer.
(f) A reversal or modification of an order approving a transfer under subsection (c) does
not affect the validity of the transfer to a person that acquired the property in good faith or revive
against the person any lien extinguished by the transfer, whether the person knew before the
transfer of the request for reversal or modification, unless the court stayed the order before the
transfer.
Comment
1. Traditionally, a receiver’s ability to sell receivership property varied depending on the
circumstances of the receivership. For example, when a court appointed a general receiver for all
of the assets of an insolvent debtor, the court would typically empower the receiver to gather and
sell the assets of the debtor. By contrast, when a court appointed a limited receiver to take
possession of a specific asset — such as a receiver for mortgaged property pending foreclosure
sale — the receiver’s role was more typically viewed as custodial. For this reason, receivers 50
appointed in conjunction with foreclosure proceedings were often viewed as having the power to
operate, maintain, and preserve the property pending the foreclosure sale—but not to sell the
property, as the sale would instead take place under the applicable foreclosure procedures.
Many have advocated that receivership is an effective way to dispose of real estate, and
in appropriate cases provides a more effective way of disposing of mortgaged real property than
the foreclosure process. Under current foreclosure law in all American jurisdictions, a
foreclosure sale is a “distress sale,” i.e., a public auction sale on the courthouse steps (or at some
other public place). Foreclosure by public sale is traditionally justified as a means to protect the
mortgagor’s equity in the mortgaged property, particularly by comparison to the historical
approach under which a defaulting borrower simply forfeited its interest in the mortgaged
property (and any equity the borrower might have accumulated, either through principal
reduction or market appreciation). Nevertheless, public foreclosure sales do not consistently
produce prices that approximate the market value that might be obtained in an arms-length, non-
distress sale. By contrast, a receiver of mortgaged commercial real property could readily
market that property to potential buyers in the context of operating the property during the
receivership. Such marketing could permit potential buyers to perform more meaningful and
complete due diligence. Further, a sale subject to judicial review and confirmation could produce
greater finality regarding the title acquired by the buyer at the sale. Thus, there is adequate
justification to expect that in many cases, a receiver sale of mortgaged commercial real estate
would produce a higher sale price than a public foreclosure sale would produce.
Another potential advantage to receiver sales arises out of the structure of the
securitization of commercial mortgages. Commercial mortgage-backed securities (CMBS) loans
are held in real estate mortgage investment conduits (“REMICs”), which are special purpose
vehicles used for the pooling of mortgage loans and the issuance of mortgage-backed securities.
The Internal Revenue Code forbids REMICs from issuing new debt or making new loans, at the
risk of losing their tax status as pass-through entities. Thus, if a REMIC ends up having to
purchase the mortgaged property at a foreclosure sale, it cannot make a new loan to a potential
buyer on a seller-financing basis. However, the Internal Revenue Code permits a REMIC to
make limited modifications to an existing defaulted loan. Thus, if the property can be sold
through a receiver or by the borrower directly, with the buyer assuming the mortgage, the
mortgage loan can be modified and restructured without threatening the REMIC’s tax status.
Thus, a CMBS lender might have good reason to believe a receiver sale can produce a higher
price by comparison to a public foreclosure (cash) sale, making such a sale attractive to a CMBS
lender that does not wish to foreclose (and possibly take ownership) of a property worth less than
the outstanding mortgage debt.
Existing federal statutes explicitly authorize a receiver appointed by a federal court to sell
mortgaged property, in either a public or private sale, 28 U.S.C.A. § 2001 et seq., and thus
receiver sales occur frequently in the context of federal receiverships. See generally John C.
Murray and Kenneth R. Jannen, Public and Private Sales of Real Property by Federal Court
Receivers, ACREL Papers (March 2011); Kay Kress, Federal Receiverships (2005 ABA
Business Law Section Meeting). There is no sound justification in commercial policy to permit
receiver sales in cases in which federal diversity or subject matter jurisdiction exists but not in
cases in which federal jurisdiction would be lacking. Unfortunately, under existing state laws, the 51
authority for receiver sales is much less clear. Only a few states have statutory provisions that
explicitly grant the power of sale to a receiver. See, e.g., Ind. Code § 32-30-5-7; N.C. Gen. Stat.
§ 1-505; Wash. Rev. Code Ann. § 7.60.260. Despite having no clear statutory authority, courts
in Ohio and Michigan have upheld court-authorized receiver sales free and clear of liens and
statutory redemption rights. See, e.g., CSB Bank v. Christy, No. 305869 (Mich. Ct. App. Oct. 18,
2012) (unpublished); Park Nat’l Bank v. Cattani, Inc., 187 Ohio App.3d 186, 931 N.E.2d 623
(2010); Huntington Nat’l Bank v. Motel 4 BAPS, Inc., 191 Ohio App.3d 90, 944 N.E.2d 1210
(2010). In most states, there is no express statutory or judicial authority for receiver sales. See,
e.g., Kirven v. Lawrence, 244 S.C. 572, 137 S.E.2d 764 (1964) (receiver appointed in foreclosure
proceeding cannot sell mortgaged real estate; sale must occur through foreclosure process). A
recent Florida court went further, holding that the court lacks the authority to authorize a receiver
appointed in a foreclosure case to sell the property free and clear of liens and rights of
redemption. Shubh Hotels Boca, LLC v. Federal Deposit Ins. Corp., 46 So.3d 163 (Fla. Dist. Ct.
App. 2010). See also Todd Enters., LLC v. MidCountry Bank, 2013 WL 4045765 (Minn. Ct.
App. 2013) (not reported in N.W.2d) (court order authorizing receiver’s sale free and clear of
borrower’s statutory right of redemption was contrary to state mortgage foreclosure statute).
Section 16 provides much-needed clarity by rejecting cases following the latter restrictive
approach.
Subsection (c) authorizes the receiver (with court approval after notice and opportunity
for a hearing as required by Section 3) to sell, lease, license, exchange or otherwise transfer
receivership property free and clear of liens and rights of redemption, other than a lien that is
senior in priority to the lien of the creditor that obtained the receiver’s appointment. The Act
gives the court the flexibility to authorize a sale either free and clear of liens or subject to one or
more liens, depending on the priority and the direction of the person seeking appointment of the
receiver. For example, a senior mortgagee of a securitized mortgage loan could seek a receiver to
facilitate a sale of the property subject to the existing CMBS loan, with that loan being modified
in the context of the receiver’s sale. In such a case, the court should direct that the receiver’s sale
would be subject to the lien of the senior mortgage. By contrast, a senior mortgagee could
instead seek court approval for the receiver to sell the property free and clear of liens and rights
of redemption (in which case the receiver’s sale would have essentially the same legal effect as a
foreclosure sale).
2. In some situations, courts appoint receivers at the behest of creditors holding subordinate
liens (such as junior mortgages or subordinate judgment liens). Subsection (c) makes clear that if
a creditor holding a junior lien on receivership property obtains the appointment of a receiver,
the court cannot authorize the receiver to sell the property free and clear of the senior creditor’s
lien without the senior creditor’s consent. Thus, if a creditor holding a second mortgage obtains
the appointment of a receiver and the court approves a sale by the receiver, the buyer at the
receiver sale acquires title subject to the first mortgage, unless the first mortgagee consents to the
sale free and clear of its lien.
As a practical matter, if a junior creditor obtains the appointment of a receiver but the
senior mortgagee does not want the buyer as the new owner, it can effectively deter the sale by
declining to accept the buyer; the Garn-St. Germain Act would permit the senior mortgagee to
exercise the due-on-sale clause in its mortgage, accelerate the senior indebtedness, and foreclose 52
the mortgage as a consequence of the receiver’s sale. 12 U.S.C. § 1701j-3 et seq. If the sale goes
forward, the buyer at that sale could redeem the title by paying off the outstanding balance due
under the first mortgage, including any enforceable prepayment fee, to the extent that the senior
mortgagee is obligated to accept prepayment of the senior debt. If the senior creditor is a
nonconsensual creditor such as the holder of a judgment lien, the senior creditor would have to
release its lien if the buyer tendered payment of the obligation secured by that lien.
Example 1. Henning owns an office building subject to a senior mortgage held by First
Bank and a junior mortgage held by Second Bank. By its terms, the loan secured by First
Bank’s mortgage includes a 5% prepayment charge, which is enforceable under
applicable law. Following default, Second Bank obtains the appointment of a receiver
and seeks court approval for a sale of the building. The court may not order the sale of
the building free and clear of First Bank’s mortgage without First Bank’s consent. If First
Bank does not consent, and the court approves a sale, the buyer at the sale will take the
building subject to First Bank’s mortgage lien, and could obtain a release of that lien only
by paying the full balance of the debt owed to First Bank (including any prepayment fee).
Example 2. Same as Example 1, except that Henning has no right to prepay the First
Bank mortgage debt, either under the contract or applicable law. If First Bank does not
consent and the court approves a sale, the buyer at the sale will take the building subject
to First Bank’s mortgage lien, but could not prepay the First Bank mortgage debt prior to
its maturity without the consent of First Bank.
Example 3. Henning owns an office building subject to a mechanics’ lien held by
Contractor and a mortgage held by Bank. Under applicable law, Contractor’s mechanics’
lien is entitled to priority. Following a default by Henning, Bank obtains the appointment
of a receiver and seeks court approval for a sale of the building. Although this Act does
not permit the court to approve a sale of the building free and clear of Contractor’s lien
without Contractor’s consent, other applicable law would require Contractor to release its
lien on receiving full payment of the sums secured by that lien. Thus, Contractor can be
expected to consent to the sale as long as the sale will provide proceeds sufficient to
satisfy Contractor’s lien in full.
Subsection (c) does not authorize the receiver to sell free and clear of easements, real
covenants, and equitable servitudes that are superior to the lien of the creditor who sought
appointment of the receiver. Under applicable law, the purchaser at a foreclosure sale would
receive title subject to any easement, real covenant, or equitable servitude that was superior to
the lien of the foreclosing mortgagee. 1 Nelson, Whitman, Burkhart & Freyermuth, Real Estate
Finance Law § 1.1, at 6 (6th ed. Practitioner’s Treatise 2014).
3. Some have argued that a receiver ought not have the power to sell receivership real
property unless the sale price was sufficient to satisfy all liens on the property. See 11 U.S.C. §
363(f) (absent consent of lienholder, trustee may sell property of the bankruptcy estate free and
clear of lien only if the sale price exceeds the aggregate value of all liens on the property, unless
other applicable law permits sale of such property free and clear of liens or the lienholder could
be compelled to accept a money satisfaction of its interest). Because the Act views a receiver 53
sale as a potential alternative to a traditional foreclosure sale (at which the collateral might fail to
bring a price sufficient to satisfy all mortgage liens), Section 16(c) rejects this view. When
receivership property is subject to multiple liens and the value of that property is not sufficient to
satisfy the senior mortgage indebtedness, but the senior mortgagee seeks the appointment of a
receiver for the purpose of selling the real estate, there is no policy justification to permit junior
lienholders a veto power over such a sale (any more than a junior lienholder should be permitted
to block a senior lienholder’s foreclosure sale). A junior lienholder that wants to protect its junior
position from extinguishment always has the option to redeem its lien by paying off the senior
indebtedness. 1 Nelson, Whitman, Burkhart & Freyermuth, Real Estate Finance Law § 7.2 (6th
ed. Practitioner’s Treatise 2014).
If the senior mortgagee wishes to obtain the appointment of a receiver for the purpose of
selling the property, but does not want a sale to proceed at a price less than the balance of the
senior mortgage debt, the senior mortgagee can ask the court to condition the receiver’s power to
sell under Section 16 on receipt of a sale price sufficient to satisfy the outstanding senior debt. If
the senior mortgagee wishes to obtain the appointment of a receiver, but does not want the
receiver to have the power to sell the property outside the ordinary course, the senior mortgagee
can ask the court to specify, in the order of appointment, that the receiver’s powers with respect
to the mortgaged property are to be merely custodial in nature. Finally, if the court has
authorized the receiver to market the property for sale and the receiver proposes a sale at a price
that would be insufficient to satisfy the senior mortgage debt, the senior mortgagee (or any other
lienholder) has the right to be heard under Section 3 in opposition to the proposed sale terms.
4. With respect to intellectual property, the rights of an owner may be limited to the rights
of a nonexclusive licensee who has no ability to transfer the owner’s rights as licensee without
the consent of the licensor. In such a situation, the receiver could assume no greater rights than
the owner had, and those rights would remain subject to the provisions of Section 9-408 of the
Uniform Commercial Code.
5. Subsection (d) provides for the transfer of any liens extinguished by the sale to the
proceeds of the sale, in the same order of priority as the liens had with respect to the real
property, even if the proceeds are not sufficient to satisfy all liens.
In some cases, a bona fide dispute might exist between lienholders over the priority of
their respective liens. For example, real property under construction might be subject to the lien
of a construction mortgage and one or more mechanics’ liens, which could (depending on
disputed facts) be prior to or subordinate to the construction mortgage. In such a case, if the
construction mortgagee obtains the appointment of a receiver for the real estate and there is a
bona fide dispute over the priority of the competing liens, subsection (c) permits the court to sell
the property free and clear of the competing liens, while later resolving the priority dispute
before making a distribution of the proceeds of the sale.
6. Subsection (e) permits (but does not require) the receiver to sell receivership property in a
private sale rather than a public auction sale. Giving the receiver the power to market the
property in a private sale, with the increased opportunity for due diligence investigation that a
private sale might provide, reflects sound policy. This gives the receiver the flexibility to market 54
the property in a fashion calculated to bring the highest possible price. Cf. U.C.C. § 9-610,
comment 2 (noting that Article 9 “encourages private dispositions on the assumption that they
frequently will result in higher realization on collateral for the benefit of all concerned”).
Nevertheless, under subsection (c), the receiver may not sell receivership property other
than in the ordinary course of business without court approval. Because the court may not enter
an order approving the sale without notice and opportunity for a hearing under Section 3, a court
may not approve a private sale without notice of the actual terms of the sale and an opportunity
for interested persons to be heard on whether those terms justify court approval.
7. Subsection (e) permits a lienholder to purchase the property at a receiver’s sale and to
credit bid at that sale, as long as the purchasing lienholder tenders funds sufficient to satisfy the
costs of the sale and the balance due on any obligation secured by any senior lien that was being
extinguished by payment or the transfer. The application of subsection (e) is demonstrated by the
following example:
Example. Henning owns an office building subject to a senior mortgage lien held by
First Bank (securing an unpaid balance of $3 million) and a junior lien held by Second
Bank (securing an unpaid balance of $1.5 million), as well as a tax lien for unpaid real
estate taxes in the amount of $100,000. Second Bank obtains the appointment of a
receiver and the court authorizes the receiver to conduct an auction sale of the real estate
under Section 16. First Bank does not consent to the sale and under applicable law may
refuse prepayment of the senior mortgage debt. Any sale by the receiver will be subject
to First Bank’s mortgage lien. Second Bank may credit bid against its $1.5 million debt
at the sale. If it is the high bidder, it may acquire title to the real estate subject to First
Bank’s senior mortgage, but free of the tax lien, as long as it tenders funds equal to the
costs of the sale and the $100,000 unpaid tax bill.
8. A receiver sale under Section 16 can be set aside because of fraud or other reasons
sufficient to justify relief from a judgment or order. Cf. Fed. R. Civ. Proc. 60(b). However,
subsection (f) provides that the title of a good faith purchaser from the receiver is not affected by
modification of the order approving the transfer or its reversal on appeal, unless the authorization
and transfer were stayed before the transfer takes place.
Subsection (f) also provides that the modification of an order approving a transfer or its
reversal on appeal does not revive any lien extinguished by the sale unless the authorization and
transfer were stayed before the transfer took place. Subsection (f) thus rejects the reasoning of
Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008)
(while equitable mootness prevented appellate court from reversing a sale that the bankruptcy
court had incorrectly approved free and clear of liens, it did not prevent the court from
reinstating a junior lien despite the sale).
9. Subsection (b) permits the receiver, with court approval, to use receivership property
other than in the ordinary course of business. This permits a receiver to use receivership
property in a manner that would differ from its normal use if such use might produce income for
the benefit of the receivership. For example, subsection (b) would authorize the receiver of a 55
vineyard and winery operation to permit the occasional use/rental of the property for weddings or
receptions even if the owner had not made equivalent use of the property.
SECTION 17. EXECUTORY CONTRACT .
(a) In this section, “timeshare interest” means [an interest having a duration of more than
three years which grants its holder the right to use and occupy an accommodation, facility, or
recreational site, whether improved or not, for a specific period less than a full year during any
given year].
(b) Except as otherwise provided in subsection (h), with court approval, a receiver may
adopt or reject an executory contract of the owner relating to receivership property. The court
may condition the receiver’s adoption and continued performance of the contract on terms
appropriate under the circumstances. If the receiver does not request court approval to adopt or
reject the contract within a reasonable time after the receiver’s appointment, the receiver is
deemed to have rejected the contract.
(c) A receiver’s performance of an executory contract before court approval under
subsection (b) of its adoption or rejection is not an adoption of the contract and does not preclude
the receiver from seeking approval to reject the contract.
(d) A provision in an executory contract which requires or permits a forfeiture,
modification, or termination of the contract because of the appointment of a receiver or the
financial condition of the owner does not affect a receiver’s power under subsection (b) to adopt
the contract.
(e) A receiver’s right to possess or use receivership property pursuant to an executory
contract terminates on rejection of the contract under subsection (b). Rejection is a breach of the
contract effective immediately before appointment of the receiver. A claim for damages for
rejection of the contract must be submitted by the later of: 56
(1) the time set for submitting a claim in the receivership; or
(2) [30] days after the court approves the rejection.
(f) If at the time a receiver is appointed, the owner has the right to assign an executory
contract relating to receivership property under law of this state other than this [act], the receiver
may assign the contract with court approval.
(g) If a receiver rejects under subsection (b) an executory contract for the sale of
receivership property that is real property in possession of the purchaser or a real-property
timeshare interest, the purchaser may:
(1) treat the rejection as a termination of the contract, and in that case the
purchaser has a lien on the property for the recovery of any part of the purchase price the
purchaser paid; or
(2) retain the purchaser’s right to possession under the contract, and in that case
the purchaser shall continue to perform all obligations arising under the contract and may offset
any damages caused by nonperformance of an obligation of the owner after the date of the
rejection, but the purchaser has no right or claim against other receivership property or the
receiver on account of the damages.
(h) A receiver may not reject an unexpired lease of real property under which the owner
is the landlord if:
(1) the tenant occupies the leased premises as the tenant’s primary residence;
(2) the receiver was appointed at the request of a person other than a mortgagee;
or
(3) the receiver was appointed at the request of a mortgagee and:
(A) the lease is superior to the lien of the mortgage; 57
(B) the tenant has an enforceable agreement with the mortgagee or the
holder of a senior lien under which the tenant’s occupancy will not be disturbed as long as the
tenant performs its obligations under the lease;
(C) the mortgagee has consented to the lease, either in a signed record or
by its failure timely to object that the lease violated the mortgage; or
(D) the terms of the lease were commercially reasonable at the time the
lease was agreed to and the tenant did not know or have reason to know that the lease violated
the mortgage.
Legislative Note: If a state statute defines the term “timeshare interest,” the state should
incorporate that definition into subsection (a).
Comment
1. At the time a receiver is appointed for a commercial real estate project, customarily the
owner has entered into a number of executory contracts related to the operation of the project. In
addition to existing occupancy leases, the owner will frequently have entered into contracts to
obtain or provide services (such as cleaning, repair, landscaping, advertising, or marketing
services). In some cases, the terms of the contract are favorable and the receiver is content to
honor the contract. In other cases, the terms of the contract are unfavorable and the receiver
might wish to obtain the needed goods or services at a competitive price from another supplier.
In particular, the receiver might not wish to have to perform a long-term supply contract that the
owner entered into with an owner-affiliated entity at a noncompetitive, above-market price.
Under established law in receivership cases, a receiver does not automatically become
bound to the owner’s existing executory contracts on appointment. See 2 Clark on Receivers, §
423, at 710 (3d ed. 1959) (“A receiver is not strictly speaking the successor of the defendant,
individual or corporation and an executory contract of the defendant is not binding on the
receiver but may be broken by the receivership and give rise to damages resulting in a claim
against the assets in the hands of the receiver.”). Consistent with this traditional rule, subsection
(b) permits the receiver to evaluate whether an executory contract relating to receivership
property is beneficial or burdensome, and with court approval to either adopt or reject the
contract accordingly.
If the receiver adopts the contract and continues to perform it, subsection (b) permits the
court to condition the receiver’s adoption on appropriate terms to provide the counterparty with
assurance of the receiver’s ability to perform. If the receiver rejects the contract, subsection (e)
provides that the rejection constitutes a breach of the contract and allows the counterparty to file
a claim against the receivership. Subsection (e) addresses only the potential liability of the 58
receivership, however, and not the underlying liability of the owner. Thus, the Act does not (1)
discharge the liability of the owner to the counterparty, (2) preclude the counterparty from
proceeding against the owner or nonreceivership property of the owner, or (3) preclude the
counterparty from proceeding against guarantors or third-party assets securing the owner’s
obligation to the counterparty.
Because the Act provides that rejection gives rise to a claim against the receivership, the
status of the contract must be resolved within some reasonable period of time before the claims
deadline. Under subsection (b), if the receiver does not request approval to accept or reject the
contract within a reasonable time following appointment, the contract is deemed to be rejected.
The receiver’s rejection power is limited to an executory contract, i.e., one under which
the obligations of each party “are so far unperformed that the failure of either to complete
performance would constitute a material breach excusing the performance of the other.” See,
e.g., Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973).
While subsection (b) allows the receiver to reject an executory contract with court approval, it
does not permit the receiver to reject a contract for which one party has made full or substantial
performance. Likewise, it does not permit the receiver to reject a contract for which a party’s
breach would not excuse the counterparty’s obligation to perform.
Example 1: Smith is appointed as receiver for ABC, Inc., which owns a shopping center.
Prior to Smith’s appointment, ABC, Inc. had entered into a year-to-year contract with
Green Landscaping to provide landscaping services to the shopping center to be billed
monthly. At the time of Smith’s appointment, 10 months remain on the current year’s
contract. ABC Inc.’s contract with Green Landscaping is an executory contract, as each
party has substantial unperformed obligations (Green Landscaping’s obligation to
provide landscaping services for 10 months, and ABC, Inc.’s obligation to pay for those
services). With court approval, Smith may reject the contract.
Example 2: Same as Example 1, but under the contract, ABC, Inc. has already paid in
full for the current year’s services. Given ABC, Inc.’s full perfomance, the contract is
not an executory contract and Smith may not reject it.
Example 3: Smith is appointed as receiver for Shady Acres II, L.P., which owns a failed
residential development (Shady Acres) in which 80 lots remain unsold and undeveloped.
Lots in Shady Acres are subject to a restrictive covenant, imposed by a recorded
declaration, that each lot within Shady Acres may be used for single-family residential
purposes only. The restrictive covenant is not an executory contract; while a lot owner
could breach the covenant by making a nonresidential use, such a breach would not
excuse the obligation of other lot owners to observe the covenant (which creates
reciprocal property interests that benefit and burden each lot). Thus, Smith may not
reject the restrictive covenant, even if Smith believes that rejection of the covenant would
enhance the value of the unsold lots.
2. The receiver’s power of rejection under Section 17 is distinct from the receiver’s right to
invalidate a transfer of receivership property under other applicable law (e.g., as a fraudulent or 59
otherwise voidable transfer). Likewise, the receiver’s power of rejection is distinct from the
receiver’s right to terminate an executory contract on account of the counterparty’s material
breach of that contract or the owner’s right to terminate the contract in accordance with its terms.
The receiver may exercise such rights of termination pursuant to its powers under Section
12(a)(4) of this Act without regard to the provisions of Section 17.
3. When a receiver is appointed for commercial real estate, it might take the receiver some
reasonable period of time to review all of the owner’s executory contracts and to make a
judgment as to whether the adopt or reject any particular contract. During this period of
investigation, the receiver may honor a particular contract temporarily, even though the receiver
may ultimately choose to reject the contract, both (a) to protect the receiver’s ability to enforce
the contract in the future should the receiver choose to adopt it and (b) to ensure no interruption
in the provision of necessary goods or services to the project. Subsection (c) provides that the
receiver’s temporary performance of the contract does not prevent the receiver from later seeking
court approval to reject it.
Example. Henning owns a shopping center subject to a mortgage held by Bank. Henning
defaults and the Bank obtains appointment of Smith as a receiver. Prior to the
receivership, Henning had entered into a long-term contract with Gabriel, who provided
landscaping and lawn services for the center. To ensure no immediate interruption in the
maintenance of the center’s lawns and flower beds, Smith has Gabriel provide those
services during the first month of the receivership, and Smith pays for those services, but
Smith’s investigation reveals that equivalent services are available at a better price from
another provider. Smith’s temporary performance of the contract with Gabriel during the
first month of the receivership does not constitute adoption of the contract and does not
prevent Smith from seeking court approval to reject the Gabriel contract.
4. Contracts sometimes contain remedy provisions under which the appointment of a
receiver constitutes a default that allows the counterparty to terminate the contract (often called
an “ipso facto” clause) or that allows the counterparty to impose “default” terms. Subsection (d)
provides that a counterparty may not exercise an “ipso facto” clause and use the receiver’s
appointment as a basis to terminate or modify an executory contract and thereby prevent its
adoption by the receiver. The prohibition on modification likewise prevents the counterparty
from using the receiver’s appointment as a basis to impose a contractual penalty so as to increase
the effective cost of the receiver’s adoption of the contract. For example, if the contract in
question is a service contract that purports to permit the counterparty to increase the agreed price
in the event a receiver is appointed, the receiver could adopt the contract at the original contract
price.
5. Under subsection (f), the receiver can assign an executory contract, but only to the extent
permitted by the contract and applicable law. See, e.g., 2 Clark on Receivers, § 441.1, at 733 (3d
ed. 1959) (“If a contract is ordinarily assignable between A & B there seems no reason why the
receiver under proper orders of court cannot assign the contract.”). The receiver thus cannot
assign an executory contract if the contract or applicable law would excuse the counterparty from
accepting performance from or rendering performance to an entity other than the owner. For
example, if the court appointed a receiver for the real and personal property of a sculptor with 60
whom a client had commissioned a custom work, the receiver could not assign to another artist
the sculptor’s rights and obligations to finish the custom work.
6. Subsection (g) addresses situations in which the receiver attempts to reject an executory
contract for the sale of receivership real property of which the purchaser is in possession (i.e., an
executory installment land contract or “contract for deed”) or an executory contract for the
purchase of a timeshare interest. It gives the purchaser the choice to (a) treat the rejection as a
termination of the contract (in which case the purchaser has a lien against the property for the
recovery of purchase money already paid); or (b) retain its rights under the contract. If the
purchaser takes the latter option, it must continue to perform its obligations, and may offset
against its liability thereon any damages caused by the owner’s nonperformance of the contract
following rejection, but has no claim or right against other receivership property or the receiver.
Subsection (g) gives these purchasers protection comparable to the protection under
Section 365(i) of the Bankruptcy Code, 11 U.S.C.A. § 365(i), and its inclusion responds to
concerns that the Act should be sensitive to “forum shopping” concerns (i.e., that the Act not
provide a contracting party with the incentive to seek appointment of a receiver to permit
termination of contracts that could not be terminated under bankruptcy law). The definition of
“timeshare interest” in this section is a simplified version of the definition contained in the
Bankruptcy Code, 11 U.S.C.A. § 101(53D), but should be modified if necessary to conform to
the definition used in any time-share legislation adopted by the state.
7. Under the definition of “executory contract” used in this Act, the term includes an
unexpired lease of receivership real property. The receiver’s ability to reject unexpired leases of
receivership real property presents a conundrum. On the one hand, if the property is subject to a
number of long-term leases that are “below-market” relative to current rental levels, the receiver
might wish to reject those leases, negotiate market-rate leases, and thereby enhance the market
value of the property for an ensuing receivership or foreclosure sale. On the other hand, many of
those tenants have negotiated those long-term leases in good faith, and rejection of those leases
could result in substantial disruption to the tenants’ business operations. Further, one or more of
those tenants might have negotiated for and obtained from the mortgagee of the project an
agreement that the tenant’s possession would not be disturbed by virtue of a foreclosure
proceeding or other creditor remedy so long as the tenant continued to perform its bargained-for
lease obligations. For these reasons, it is appropriate to constrain the receiver’s ability to reject
unexpired leases.
Subsection (h) protects most tenants holding unexpired leases of real property from
having their leases rejected by the receiver. Under no circumstances can the receiver reject the
lease of a tenant that occupies the property as a primary residence. Likewise, when the receiver
is appointed at the behest of an involuntary lienholder (such as a judgment creditor or
mechanics’ lienor), the receiver likewise cannot reject a tenant’s unexpired lease.
When a receiver is appointed at the behest of a mortgagee, the receiver cannot reject the
lease under any of the following circumstances: (a) the lease is senior in priority to the
mortgage; (b) the tenant has a nondisturbance agreement with the mortgagee or the holder of a
senior lien; (c) the mortgagee has consented, either in a signed record or by its failure to timely 61
object that the lease violates the terms of the mortgage; or (d) the lease was commercially
reasonable at the time of the agreement and the tenant did not know or have reason to know that
the lease violated the terms of the mortgage.
Example 1. Henning owns an office building subject to a recorded mortgage in favor of
Bank. At the time Henning granted the mortgage to Bank, Henning had leased the entire
building to ABC Corp. for use as its headquarters under a 20-year lease, and a
memorandum of that lease was recorded in the land records. Further, ABC Corp. did not
enter into any agreement with Bank subordinating its lease to the lien of Bank’s
mortgage. Following default by Henning, Bank obtains the appointment of Smith as a
receiver for the building. Smith wants to reject ABC Corp.’s unexpired lease unless ABC
Corp. will agree to adjust the rent due under the lease to current market levels. Under
subsection (h)(3)(A), Smith cannot reject ABC Corp.’s lease, as that lease is entitled to
priority over the lien of Bank’s mortgage. This result is appropriate, as a foreclosure of
Bank’s mortgage would not have extinguished ABC Corp.’s lease. Nelson, Whitman,
Burkhart & Freyermuth, Real Estate Transfer, Finance and Development 380-389 (9th
ed. 2015).
Example 2. Same as Example 1, except that ABC Corp. and Bank entered into a
“Subordination, Nondisturbance and Attornment Agreement” under which ABC Corp.
agreed to subordinate its lease to the lien of Bank’s mortgage, and Bank agreed (for itself
and its successors and assigns) that in the event of a foreclosure, ABC Corp.’s possession
of the building would not be disturbed as long as ABC Corp. performed all of its
obligations under its lease. Under subsection (h)(3)(B), Smith cannot reject ABC Corp.’s
lease. By virtue of its nondisturbance agreement, ABC Corp. may remain in possession of
the building as long as it does not default in the performance of its lease obligations.
Example 3. Henning owns an office building subject to a recorded mortgage in favor of
Bank. Bank’s mortgage contains an assignment of leases and rents that provides that
Henning may not enter into a lease of the property at a rent substantially below fair
market value at the time of the lease without Bank’s prior written approval. Without
obtaining Bank’s prior written approval, Henning leases office space in the building to
his friend Gabriel for $1,000 per month at a time when the prevailing market rent for
comparable space is $15,000 per month. Two weeks later, following default by Henning,
Bank obtains the appointment of Smith as a receiver for the building. Under subsection
(h)(3)(D), Smith may reject Gabriel’s lease, because the lease was not commercially
reasonable at the time Henning and Gabriel contracted and Gabriel had constructive
notice (through the terms of the recorded mortgage) that the lease violated the mortgage.
See, e.g., Restatement (Third) of Property: Mortgages § 4.4(b), (c) (1997) (receiver may
disaffirm lease that contravenes a provision of a prior recorded mortgage or that was
made while mortgagor was in default and was not commercially reasonable when it was
consummated).
Example 4. Same as Example 3, except that at the time Henning entered into the lease
with Gabriel, Henning sought and obtained Bank’s written consent to Gabriel’s lease.
Under subsection (h)(3)(C), Smith may not reject Gabriel’s lease, because Bank 62
expressly consented to it.
Example 5. Same as Example 3, except that at the time Henning defaults and Smith is
appointed receiver: (a) three years have passed since Gabriel’s lease commenced, (b)
each year, Henning has provided Bank a copy of the rent roll showing the terms of
Gabriel’s lease, and (c) Bank never declared a default based on Henning’s lease to
Gabriel nor took steps to terminate the lease. Under subsection (h)(3)(C), Smith may not
terminate the lease, as Bank has consented to Gabriel’s lease by virtue of its failure to
take steps to terminate the lease despite its awareness that the lease existed and violated
the terms of the mortgage. Cf. U.C.C. § 1-303(a), (f) (course of performance can be
established through acquiescence and establish waiver or modification of contractual
term inconsistent with course of performance).
Example 6. Henning owns a 200-unit apartment building subject to a recorded mortgage
in favor of Bank. Each tenant lease limits use of the unit to residential purposes only.
Following default by Henning, Bank obtains the appointment of Smith as a receiver for
the building. Under subsection (h)(1), Smith may not reject the lease of any tenant
occupying a unit as the tenant’s primary residence.
Subsection (h) merely constrains the receiver’s ability to reject an unexpired lease. It does
not affect the receiver’s ability to enforce an unexpired lease according to its terms and thus to
terminate the lease of a tenant who defaults. Thus, in Example 6, while Smith could not reject a
tenant’s lease, Smith could institute summary proceedings against any tenant who fails to pay the
required monthly rent and terminate the tenant’s rights under the lease for nonpayment (subject
to the protections available to the tenant under applicable law other than this Act).
SECTION 18. DEFENSES AND IMMUNITIES OF RECEIVER.
(a) A receiver is entitled to all defenses and immunities provided by law of this state
other than this [act] for an act or omission within the scope of the receiver’s appointment.
(b) A receiver may be sued personally for an act or omission in administering
receivership property only with approval of the court that appointed the receiver.
Comment
1. As an officer of the court, a receiver is shielded by judicial immunity for actions
performed under the lawful authority of the appointment order. As the leading treatise explains:
On the highest grounds of necessity and public policy judges cannot be held liable
for acts done by them in their judicial capacity…. It follows that courts managing
property through a receiver cannot be held liable as courts for imperfect management.
Officers of the courts, such as sheriffs, constables, receivers and other officers, who act in
obedience to the lawful mandate of the court or in obedience to lawful process of any 63
sort, are protected or privileged in respect to acts done under such lawful authority. [2
Clark on Receivers, § 388, at 648 (3d ed. 1959).]
Consistent with this approach, the Act provides the receiver with immunity for acts or omissions
within the scope of the order appointing the receiver.
2. Determining the breadth of a receiver’s immunity could create a conceptual problem in a
case in which a receiver has been appointed as a primary receiver by a court in one state and an
ancillary receiver by a court in another state. If the primary state’s law provides the receiver
with broader immunity than does the ancillary state’s law, a question might arise as to whether
the receiver is entitled to the broader immunity available under the law of the primary state (or
only the narrower immunity available under the law of the ancillary state). In these cases, courts
should resolve these issues by reference to conflicts-of-laws principles.
3. Subsection (b) is an adaptation of Wash. Rev. Code Ann. § 7.60.160(1), and incorporates
into the Act the Barton doctrine, which derives from the decision of the United States Supreme
Court in Barton v. Barbour, 104 U.S. 126, 129, 26 L.Ed. 672 (1881). In Barton, the Supreme
Court held that to sue a court-appointed receiver, the would-be plaintiff must first seek approval
of the appointing court. The doctrine rests on the notion that the appointing court has in rem
jurisdiction over the receivership property; thus, a forum other than the appointing court would
lack subject-matter jurisdiction over the action. See also 2 Clark on Receivers, § 549, at 890 (3d
ed. 1959) (“The custody of property by the court through its receiver is the custody of the
sovereign power or government acting through the courts. Possession by the court of the res
gives jurisdiction over the res to the court appointing the receiver and gives such court power to
determine all questions concerning the ownership and disposition of this property. No other court
can interfere with the possession of the res. The general rule of law, therefore, naturally follows
that a receiver as an officer of court cannot in the absence of an enabling statute be sued without
leave of the court appointing him.”).
The appointing court has discretion whether to grant leave to sue the receiver. The
would-be plaintiff need not demonstrate a substantial likelihood of prevailing on the merits to
obtain permission to sue the receiver. However, the would-be plaintiff must present a prima facie
case for holding the receiver personally liable and show that its claim is not without foundation.
See, e.g., In re National Molding Co., 230 F.2d 69, 71 (3d Cir. 1956). Nevertheless, a decision by
the court to give permission to sue the receiver is not a conclusion that the would-be plaintiff’s
claim is meritorious.
If the appointing court does grant the would-be plaintiff permission to sue the receiver,
nothing in this Act mandates the appointing court as the venue for the lawsuit. The Act leaves
questions regarding jurisdiction and venue over such a suit to other applicable law.
SECTION 19. INTERIM REPORT OF RECEIVER. A receiver may file or, if
ordered by the court, shall file an interim report that includes:
(1) the activities of the receiver since appointment or a previous report; 64
(2) receipts and disbursements, including a payment made or proposed to be made to a
professional engaged by the receiver;
(3) receipts and dispositions of receivership property;
(4) fees and expenses of the receiver and, if not filed separately, a request for approval of
payment of the fees and expenses; and
(5) any other information required by the court.
Comment
Section 19 derives from Minn. Stat. Ann. § 576.36. It does not automatically require the
receiver to prepare interim reports, except as ordered by the court. This approach provides
flexibility to accommodate different judicial approaches—courts that have traditionally required
only a final report could continue with such an approach, while courts that have traditionally
required periodic reporting could specify an appropriate period in the order of appointment.
SECTION 20. NOTICE OF APPOINTMENT; CLAIM AGAINST
RECEIVERSHIP; DISTRIBUTION TO CREDITORS.
(a) Except as otherwise provided in subsection (f), a receiver shall give notice of
appointment of the receiver to creditors of the owner by:
(1) deposit for delivery through first-class mail or other commercially reasonable
delivery method to the last-known address of each creditor; and
(2) publication as directed by the court.
(b) Except as otherwise provided in subsection (f), the notice required by subsection (a)
must specify the date by which each creditor holding a claim against the owner which arose
before appointment of the receiver must submit the claim to the receiver. The date specified
must be at least [90] days after the later of notice under subsection (a)(1) or last publication
under subsection (a)(2). The court may extend the period for submitting the claim. Unless the
court orders otherwise, a claim that is not submitted timely is not entitled to a distribution from 65
the receivership.
(c) A claim submitted by a creditor under this section must:
(1) state the name and address of the creditor;
(2) state the amount and basis of the claim;
(3) identify any property securing the claim;
(4) be signed by the creditor under penalty of perjury; and
(5) include a copy of any record on which the claim is based.
(d) An assignment by a creditor of a claim against the owner is effective against the
receiver only if the assignee gives timely notice of the assignment to the receiver in a signed
record.
(e) At any time before entry of an order approving a receiver’s final report, the receiver
may file with the court an objection to a claim of a creditor, stating the basis for the objection.
The court shall allow or disallow the claim according to law of this state other than this [act].
(f) If the court concludes that receivership property is likely to be insufficient to satisfy
claims of each creditor holding a perfected lien on the property, the court may order that:
(1) the receiver need not give notice under subsection (a) of the appointment to all
creditors of the owner, but only such creditors as the court directs; and
(2) unsecured creditors need not submit claims under this section.
(g) Subject to Section 21:
(1) a distribution of receivership property to a creditor holding a perfected lien on
the property must be made in accordance with the creditor’s priority under law of this state other
than this [act]; and
(2) a distribution of receivership property to a creditor with an allowed unsecured 66
claim must be made as the court directs according to law of this state other than this [act].
Comment
1. This Act provides a claims process that is substantially simpler and more flexible than the
comprehensive provisions found in the receivership codes enacted in Minnesota and
Washington. The Act provides a claims process that the court can adapt to either a custodial
receivership (in which the receiver acts to preserve the property pending the completion of a
foreclosure or some other legal proceeding) or a general receivership (in which the receiver
manages all or substantially all of the assets and financial affairs of the owner).
In a general receivership, a receiver may gather and liquidate all or substantially all of the
assets of the owner. If there is an expectation that the receiver’s conduct will generate sums in
excess of the amount of any secured claims and thus produce proceeds for distribution to general
creditors, the Act provides a process for the receiver to give notice to all creditors, so those
creditors can submit claims against the receivership estate.
By contrast, it might be that the receivership property in a general receivership is not
likely to generate sums greater than the amount of valid liens on the property. Similarly, in a
custodial receivership, the sums generated by the receiver’s actions, often in the form of net
rents, might be far less than the amount of applicable liens, thus leaving no proceeds for
distribution to general creditors. In such cases, notice to all unsecured creditors might not be
useful, and Section 20 allows the court to limit formal notice to those creditors whose interests
may be affected by the receivership.
2. Subsection (a) provides that unless the court orders otherwise, the receiver must give
notice of appointment to creditors by first class mailing to the last known address of each
creditor and by publication as directed by the court. Subsection (b) then directs any creditors
holding claims that arose before appointment to file a proof of that claim with the receiver within
90 days unless the court extends that deadline. Creditors submitting untimely claims may not
receive a distribution from the receivership unless the court orders otherwise. This permits the
court the flexibility to allow the untimely claim of a creditor in appropriate circumstances (e.g.,
the creditor did not receive mailed notice and only gained knowledge of the receivership after the
bar date had passed).
If the court concludes that the receivership property is likely not sufficient to satisfy the
claims of creditors holding liens on that property, subsection (f) permits the court to direct the
receiver to notify only those creditors required by the court, and to forgo the filing of claims by
unsecured creditors.
Subsection (a) requires publication to facilitate the ability of the receiver to give notice to
any creditors unknown to the receiver at the time. By requiring publication “as directed by the
court,” the Act provides the court with the flexibility as to the manner of publication in light of
technological evolution and changing economics in the publishing industry. In many situations, a
court may direct the receiver to publish notice in a newspaper of general circulation in the county
where the receivership real property is located, but in some counties today (and increasingly so 67
in the future), it might be the case that the only “newspapers” of circulation in a county are ones
that publish only in electronic form. Subsection (a) permits a court to permit electronic
publication in that context.
3. Subsection (c) provides minimal requirements for the creditor’s proof of claim.
4. Subsection (d) makes clear that while the Act does not prohibit the assignment of claims
against the receivership, an assignment is effective against the receiver only if the assignee gives
the receiver timely notice of the assignment. The amount of notice that is “timely” might differ
depending on the circumstances. For example, for notice of an assignment to be effective to
protect the assignee’s right to a distribution from the receivership, timely notice requires the
assignee to give notice before distributions were made. By contrast, suppose that the receiver
proposes to sell receivership property, and seeks to give notice of a proposed sale and a hearing
to approve the sale terms. In this context, an assignment of a claim would be effective against
the receiver so as to obligate the receiver to give notice of the proposed sale and hearing if the
assignee gave notice of the claim assignment before the receiver gave notice of the proposed
sale.
Example. On April 1, the receiver gives Creditor X notice of a proposed sale of
receivership property to be held on April 20. On April 8, Creditor X assigns its claim to
Creditor Y. On April 12, Creditor Y notifies the receiver of the claim assignment. On
April 20, the receiver sells the property to Purchaser, who pays value in good faith. Even
though the sale had not occurred at the time of Creditor X’s assignment, the validity of
the sale should not be called into question because Creditor Y did not receive notice of
the proposed sale. However, for purposes of any distribution to creditors, the assignment
of the claim to Creditor Y is effective against the receiver.
5. The Act makes clear in Section 12(b)(6) that (if the court so orders) the receiver has the
power to recommend the allowance and disallowance of claims. Subsection (e) makes clear that
the court may disallow a timely-filed claim to the extent that the claim is not enforceable under
other applicable law.
6. As described in Comments 1 and 2, subsection (f) permits the court to streamline the
claims process if the court concludes that the expected net proceeds from the receivership will be
insufficient to satisfy the claims of creditors holding secured claims against receivership
property. In such a case, the court may order that the receiver notify only those creditors
directed by the court and that unsecured creditors need not submit claims. In any event,
however, any creditor holding a secured claim against receivership property must file a proof of
claim with the receiver, so that the receiver can have the information necessary to facilitate the
receiver’s ability to make recommendations regarding the appropriate distribution of receivership
property or the proceeds of such property.
A court might order the receiver to forgo the process for unsecured claims under
subsection (f), only to discover later that the receivership in fact generated receipts in excess of
the amount needed to satisfy secured claims. In this case, Section 5 preserves to the court the
authority to order the receiver to re-institute the default notice and claims process provided in 68
Section 20, and the receiver would be obliged to carry out that order under Section 12(c)(5).
7. Subsection (g) provides that any distribution of receivership property to a creditor with a
perfected lien on that property shall be made according to the state’s applicable priority rules as
determined by law other than this Act. This applies both to the distribution of proceeds from the
sale of receivership property under Section 16 and to the distribution of collected rents that are
the subject of an assignment of rents.
Subsection (g) also provides that allowed unsecured claims shall receive distribution
from the residue of the receivership property as the court directs in accordance with law of this
state other than this Act (including the state’s choice of law rules). Subsection (g) makes clear
that the court should respect any rules of administrative priority for certain unsecured claims that
might exist under other applicable law of the state. Absent applicable law requiring a higher
priority to certain unsecured claims, creditors holding unsecured claims would typically share in
any distributions on a pro rata basis.
SECTION 21. FEES AND EXPENSES.
(a) The court may award a receiver from receivership property the reasonable and
necessary fees and expenses of performing the duties of the receiver and exercising the powers
of the receiver.
(b) The court may order one or more of the following to pay the reasonable and
necessary fees and expenses of the receivership, including reasonable attorney’s fees and costs:
(1) a person that requested the appointment of the receiver, if the receivership
does not produce sufficient funds to pay the fees and expenses; or
(2) a person whose conduct justified or would have justified the appointment of
the receiver under Section 6(a)(1).
Comment
1. Under subsection (a), the court may allow the receiver to recover the reasonable and
necessary fees and expenses of carrying out its duties and exercising its powers before
distribution to secured creditors. See, e.g., 2 Clark on Receivers, § 640.1(b), at 1082 (3d ed.
1959) (“A sale by the receiver free from liens is for most practical purposes equivalent to a
foreclosure sale and if and when the property is realized under such circumstances and if and
when the mortgagees or lienholders avail themselves of the advantage of the receivership to
effect the sale of the mortgaged premises, this means they have saved themselves similar
expenses in a foreclosure suit or otherwise and, therefore, should pay for the advantage they have 69
received.”).
2. Subsection (b)(1) provides that if a person seeks appointment of a receiver and the
resulting receivership receipts were insufficient to pay the costs of the receivership, the court
may assess the person who sought the receivership for the shortfall.
Subsection (b)(2) provides that if the receiver is or could have been appointed under
Section 6(a)(1) of this Act—i.e., if the property or its revenue-producing potential was being
subjected to waste, loss, dissipation, or impairment—then the court may impose the costs of the
receivership on the person responsible for that waste, loss, dissipation, or impairment.
In subsection (b), the “reasonable and necessary fees and expenses of the receivership”
would include reasonable fees and expenses incurred by any professional engaged by the
receiver under Section 15.
SECTION 22. REMOVAL OF RECEIVER; REPLACEMENT ; TERMINATION
OF RECEIVERSHIP.
(a) The court may remove a receiver for cause.
(b) The court shall replace a receiver that dies, resigns, or is removed.
(c) If the court finds that a receiver that resigns or is removed, or the representative of a
receiver that is deceased, has accounted fully for and turned over to the successor receiver all
receivership property and has filed a report of all receipts and disbursements during the service
of the replaced receiver, the replaced receiver is discharged.
(d) The court may discharge a receiver and terminate the court’s administration of the
receivership property if the court finds that appointment of the receiver was improvident or that
the circumstances no longer warrant continuation of the receivership. If the court finds that the
appointment was sought wrongfully or in bad faith, the court may assess against the person that
sought the appointment:
(1) the fees and expenses of the receivership, including reasonable attorney’s fees
and costs; and
(2) actual damages caused by the appointment, including reasonable attorney’s 70
fees and costs.
Comment
1. Subsection (a) permits the removal of the receiver for cause. The Act does not define
“cause,” but leaves the determination of whether “cause” exists to judicial determination on a
case-by-case basis. This approach reflects sound policy, as the facts and circumstances might
vary substantially from one receivership to another. Certainly, “cause” would include the
receiver’s refusal or failure to carry out its duties. 3 Clark on Receivers, § 692, at 1272 (3d ed.
1959).
2. Under subsection (c), once a removed receiver (or a representative, in the case of a
deceased receiver) has provided a full accounting for all receivership property and a full report of
all receipts and disbursements during its tenure, 3 Clark on Receivers, § 699.1, at 1285 (3d ed.
1959), the replaced receiver is discharged from further duties as receiver.
The discharge of the receiver is a discharge from further duties as receiver; it is not a
discharge of liability for acts taken by the receiver during the receivership and for which the
receiver would not be entitled to immunity under Section 18.
3. Subsection (d) permits the court to discharge a receiver and terminate the receivership if
the court finds that the receiver’s appointment was improvident or that the receivership is no
longer warranted. See, e.g., 3 Clark on Receivers, § 692.1, at 1274-1277 (3d ed. 1959). If the
court terminates a receivership as having been improvidently granted and the court further finds
that the person who procured the receiver’s appointment acted wrongfully or in bad faith, the
court may impose on such person the costs of the receivership and may assess against the person
damages in favor of the owner, including attorney fees.
SECTION 23. FINAL REPORT OF RECEIVER; DISCHARGE .
(a) On completion of a receiver’s duties, the receiver shall file a final report including:
(1) a description of the activities of the receiver in the conduct of the receivership;
(2) a list of receivership property at the commencement of the receivership and
any receivership property received during the receivership;
(3) a list of disbursements, including payments to professionals engaged by the
receiver;
(4) a list of dispositions of receivership property;
(5) a list of distributions made or proposed to be made from the receivership for 71
creditor claims;
(6) if not filed separately, a request for approval of the payment of fees and
expenses of the receiver; and
(7) any other information required by the court.
(b) If the court approves a final report filed under subsection (a) and the receiver
distributes all receivership property, the receiver is discharged.
Comment
Section 23 provides for the termination of the receivership and discharge of the receiver
once the receiver has filed a final report complying with subsection (a), the court has approved
that report following notice and opportunity for hearing as required in Section 3, and the receiver
has distributed all receivership property in the manner directed by the court and this Act. The
receiver’s final report is based on the same general template as any interim reports filed by the
receiver.
Section 23 directs the receiver to prepare its final report on “completion” of its duties.
Absent an explicit direction from the court, the receiver should prepare its final report when it
believes that it has carried out all of its duties under this Act, and when the receiver is prepared
to make a final distribution of receivership property. If the court thereafter orders the receiver to
carry out further duties, the receiver may update its final report accordingly following their
completion.
The discharge of the receiver is a discharge from further duties as receiver; it is not a
discharge of liability for acts taken by the receiver during the receivership and for which the
receiver would not be entitled to immunity under Section 18.
SECTION 24. RECEIVERSHIP IN ANOTHER STATE; ANCILLARY
PROCEEDING.
(a) The court may appoint a receiver appointed in another state, or that person’s
nominee, as an ancillary receiver with respect to property located in this state or subject to the
jurisdiction of the court for which a receiver could be appointed under this [act], if:
(1) the person or nominee would be eligible to serve as receiver under Section 7;
and 72
(2) the appointment furthers the person’s possession, custody, control, or
disposition of property subject to the receivership in the other state.
(b) The court may issue an order that gives effect to an order entered in another state
appointing or directing a receiver.
(c) Unless the court orders otherwise, an ancillary receiver appointed under subsection
(a) has the rights, powers, and duties of a receiver appointed under this [act].
Comment
1. State boundary lines provide an inherent jurisdictional limitation to the ability of a
receiver to exercise control over receivership property located outside the boundaries of the state
in which the receiver was appointed. As the leading treatise explains:
Although a court having jurisdiction of the defendant owner of property in another state
may make an order appointing a receiver of the defendant's property wherever situated,
such an order does not immediately or directly bind tangible personal property or real
estate outside the territorial jurisdiction of the appointing court. Such an order does not of
itself cut off rights of local creditors to proceed against the defendant's property in the
foreign jurisdiction. [1 Clark on Receivers § 294, at 483 (3d ed. 1959).]
Thus, a court cannot immediately exercise jurisdiction over real estate and/or tangible personal
property outside of its territorial jurisdiction. In this circumstance, it might become necessary for
the person who sought the receiver’s appointment to apply to a court in the situs state (the state
where the real estate and/or tangible personal property is located) for the appointment of an
ancillary receiver. 1 Clark on Receivers § 318 (3d ed. 1959).
2. Section 24 is based in significant part on the provisions of the Minnesota receivership
statute, Minn. Stat. Ann. § 576.41. Subsection (a) addresses the appointment in this state of an
ancillary receivership to a primary receivership already granted in another state. It provides that
the foreign receiver (or that receiver’s nominee) may be appointed as an ancillary receiver for
property in this state, as long as the receiver or nominee would be eligible for appointment under
this Act and appointment would further the purposes of the foreign receivership. A person
appointed as an ancillary receiver has all of the powers, rights and duties of a receiver under this
Act, unless the court orders otherwise.
Subsection (b) authorizes the court to enter any order necessary to give effect to an order
of another state appointing a receiver or directing the receiver’s conduct. For example, under
subsection (b), the court could enter an order authorizing a foreign receiver to repossess personal
property collateral in this state (rather than requiring the petitioning receiver to incur the cost of
having to obtain the appointment of an ancillary receiver in this state).
73
3. Subsection (c) provides that an ancillary receiver’s powers and duties are determined by
this Act.
SECTION 25. EFFECT OF ENFORCEMENT BY MORTGAGEE .
[(a)] A request by a mortgagee for appointment of a receiver, the appointment of a
receiver, or application by a mortgagee of receivership property or proceeds to the secured
obligation does not:
(1) make the mortgagee a mortgagee in possession of the real property;
(2) make the mortgagee an agent of the owner;
(3) constitute an election of remedies that precludes a later action to enforce the
secured obligation;
(4) make the secured obligation unenforceable; [or]
(5) limit any right available to the mortgagee with respect to the secured
obligation[;][; or]
[(6) constitute an action within the meaning of [cite the “one-action” statute of
this state][; or]]
[(7) except as otherwise provided in subsection (b), bar a deficiency judgment
pursuant to law of this state other than this [act] governing or relating to a deficiency judgment].
[(b) If a receiver sells receivership property that pursuant to Section 16(c) is free and
clear of a lien, the ability of a creditor to enforce an obligation that had been secured by the lien
is subject to law of this state other than this [act] relating to a deficiency judgment.]
Legislative Note: If state law does not prohibit or otherwise limit the ability of a lienholder to
obtain a deficiency judgment following the enforcement of a lien, the state should enact this
section without subsections (a)(7) and (b).
A state that does not have a “one action” statute should omit subsection (a)(6). 74
Comment
1. Section 25 is an adaptation of Section 11 of the Uniform Assignment of Rents Act
(UARA), which provides that certain actions taken by an assignee of rents to enforce its security
interest in rents (such as direct collection of rents after notification to tenants or through
appointment of a receiver) does not itself make the assignee a “mortgagee in possession,”
constitute an election of remedies, waive other security held by the assignee, violate a state’s
“one-action” rule, or constitute a foreclosure sale for purposes of triggering a state’s anti-
deficiency rule. Section 25 assures that this Act does not conflict with UARA by making clear
that the decision of a mortgagee or an assignee of rents to pursue its appointment of a receiver
under the Act should not trigger a state’s one-action rule or bar the mortgagee or assignee of
rents from an action to enforce the debt. See, e.g., Cal. Code Civ. Proc. § 564(d) (“Any action by
a secured lender to appoint a receiver pursuant to this section shall not constitute an action within
the meaning of [California’s one-action rule].”).
2. Subsection (b) is appropriate in states that have enacted legislation prohibiting an action
for a deficiency judgment following the foreclosure of some or all liens. Under Section 16(c), a
sale of receivership property by the receiver could have the effect of extinguishing one or more
liens on the property. Such a receivership sale is not a foreclosure sale under this Act, but could
have an effect similar to the title-clearing effect of a foreclosure sale. See, e.g., 2 Clark on
Receivers, § 640.1(b), at 1082 (3d ed. 1959) (“A sale by the receiver free from liens is for most
practical purposes equivalent to a foreclosure sale ….”). In those situations, the obligor should
be protected by a state’s prohibition on deficiency judgments to the same extent as the obligor
would have been protected following a foreclosure sale, and subsection (b) accomplishes this
result.
Subsection (b) is also appropriate in states that place a “fair value” limit on the ability of
a foreclosing creditor to obtain a deficiency judgment following a foreclosure sale. In such
states, the foreclosing creditor’s deficiency judgment is calculated by reference to the difference
between the outstanding balance of the debt and the appraised “fair market value” of the property
(rather than the difference between the outstanding balance of the debt and the foreclosure sale
price). If a receiver sells receivership property free and clear of a lien under Section 16(c),
Section 25(b) would provide the obligor with the benefit of the state’s “fair value” rule in a
subsequent action on the debt by the holder of the extinguished lien.
SECTION 26. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In
applying and construing this uniform act, consideration must be given to the need to promote
uniformity of the law with respect to its subject matter among states that enact it.
SECTION 27. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COM MERCE ACT. This [act] modifies, limits, or supersedes the Electronic
Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but does not 75
modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize
electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C.
Section 7003(b).
SECTION 28. TRANSITION. This [act] does not apply to a receivership for which the
receiver was appointed before [the effective date of this
[act]].
SECTION 29. REPEALS; CONFORMING AMENDMENTS .
(a) . . . .
(b) . . . .
(c) . . . .
SECTION 30. EFFECTIVE DATE. This [act] takes effect . . . .