When a lender seeks to foreclose a property, it may be advantageous to have a receiver appointed by the court. A receiver’s responsibilities are to take custody of, manage, and preserve property. In deciding whether or not to appoint a receiver, the court will balance the owner’s right to own and possess the property and the lender’s right to protect its security in the property.
In Florida, appointing a receiver is solely within the court’s discretion, but a lender’s contractual provision regarding receivership may influence a court that would otherwise not grant an appointment. There must be sufficient evidence that the mortgage property as security is impaired. Sufficient evidence includes: destruction of the property, waste, failure to pay taxes or insurance, failure to comply with the covenants in favor of various mortgages, failure to collect rents or profits or protect against loss, insolvency of the mortgagor, and decrease in property value to a point where it is insufficient security for the mortgage indebtedness.
If appointed by the court, a receiver’s primary responsibility involves the maintenance, preservation and protection of the mortgaged property. Where the property is commercial or income producing and the mortgagor’s actions have placed productivity in jeopardy, a receiver may be granted more power and responsibility from the court to insure the viability of the business, including without limitation, the power to collect rents and profits, pay the operating expenses for the property, enter into contracts required in the ordinary course of business for the operation of the property, etc. It is good practice to set forth in detail the powers and limitations of a receiver in the order of appointment by the court.
While an inclusion of a receivership clause in the mortgage documents does not in and of itself guarantee the appointment of a receiver, a well-drafted provision in a mortgage instrument can certainly be a helpful factor in the court appointing a receiver. At Schecter Law, we use our extensive experience to assist our clients in obtaining the best possible terms for their secured mortgage loan transactions. Our experience extends to assisting lenders in negotiating and preparing security documents and loan agreements that protect their interests.