The Role of the Receiver in Commercial Foreclosures

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The COVID-19 pandemic has been extremely difficult. Even when people are not getting sick or losing a loved one, the sad truth is that many Floridians have been worried about their business all year. Forced lockdowns and a general fear among the public related to doing things as simple as shopping or eating inside a restaurant have hit business owners extremely hard. While homeowners got some relief during the height of the pandemic, commercial business owners did not get much. As such, many of them will likely face foreclosure in the coming months.

Commercial foreclosures are similar to residential foreclosures, but they do have some differences. One of those is that a commercial foreclosure involves a receiver. It is important that business owners understand what a receiver is and the role they will play during the foreclosure process.

The Uniform Commercial Real Estate Receivership Act

Recently, Florida has adopted the Uniform Commercial Real Estate Receivership Act (UCRERA). The vast majority of commercial real estate loan documents allow for the appointment of a receiver in the event the borrower defaults on the loan. However, in Florida, the appointment of a receiver did not happen in every case prior to the adoption of the UCRERA. Instead, it was considered an extraordinary remedy that should only be used with caution, as it is an infringement of the owner’s fundamental right to possess their own property.

The role of the receiver in a commercial foreclosure is to protect the value of the property. The trial court has the discretion to appoint a receiver in a commercial foreclosure case. However, if it is not found that the property is being wasted or otherwise at risk of serious loss, it is an abuse of that discretion for the trial court to appoint one. The courts have largely followed this standard without giving any regard to the language contained within mortgage or loan agreements that provides the absolute right to appoint a receiver.

Florida did not adopt the UCRERA until July of 2020. That made the state the ninth state to enact the legislation along with Utah, Oregon, Nevada, Tennessee, Michigan, Maryland, Arizona, and North Carolina. The fact that Florida has now adopted the Act is important because the appointment of a receiver is helpful to the lender and hurtful to commercial property owners. It was the UCRERA Task Force that decided to implement this piece of law in Florida. Their reason for doing so was to provide a clear standard for appointing a receiver. Up until the law was adopted, according to the UCRERA Task Force, the standards differed from one county to the next on when a receivership was an appropriate remedy.

Potential Litigation Surrounding the UCRERA

The standard for appointing a receiver according to the UCRERA is the potential for serious risk of loss. While this is just one standard, Florida law allows for many different standards when appointing a receiver. This law states that when a property has moved into foreclosure or a lender is trying to enforce a mortgage, the court must consider a number of facts and circumstances, along with certain relevant facts, to determine if they should appoint a receiver for a property.

Those facts and circumstances include:

  • Appointing a receiver is necessary to protect the property from loss, waste, or substantial reduction in value,
  • The borrower agreed to appoint a receiver after they have defaulted,
  • The owner agreed to appoint a receiver after the property had fallen into default,
  •  Assets and other collateral held by the lender do not carry enough value to sufficiently satisfy the secured obligation,
  • The owner failed to provide the lender with mortgage proceeds or rents the lender was entitled to, or
  • The holder of a lien appointed a receiver for the property.

The UCRERA significantly modified the previous standards for appointing a receiver in Florida, particularly Sections 2(b) and (c). As a result, it is expected that Florida will see significant litigation in the coming months. That litigation will likely focus on whether meeting just one factor of Section 2 is enough for the courts to appoint a receiver, or if the courts will have to meet more than one standard.

The language of the law is not always clear. The Florida Statutes state that the court should consider the above facts and circumstances, along with any other relevant information. When this type of language is used, it is generally to allow judges to make their own analysis in any case. The appellate courts, on the other hand, are more likely to focus on the exact standards outlined in the statute. As such, it is crucial that loans and mortgage agreements include language that will trigger section 2(b) and 2(c) of the statute.

It is important that all commercial owners understand the adoption of the UCRERA and what it means to them. Unfortunately, commercial foreclosures are likely to increase in the coming months and the current language of the law allows lenders to become particularly aggressive until an appellate court says otherwise. It is not uncommon in commercial mortgage foreclosures for the receivership appointment to draw an end to a case, which means the business owner will likely lose the property.

A commercial foreclosure defense lawyer will attempt to expand the requirements a court must consider. A lawyer will also remind the trial judge that the language allows the judge to use their own discretion when deciding whether to appoint a receiver or not.

Our Florida Commercial Foreclosure Defense Lawyers can Help with Your Case

No one ever wants to lose their business, or lose the place their business calls home. Sadly, it is expected to happen more often in the coming months. If you are a business owner facing foreclosure, do not go it alone. At Loan Lawyers, our Fort Lauderdale commercial foreclosure defense attorneys can assist with your case. We will explain the law and how it applies to your case, and use the defenses available to build a solid defense and give you the best chance of keeping the property. Call us today at (954) 807-1361 or contact us online to schedule a free consultation with one of our skilled attorneys.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.