Skip to content

The Receivership is an alternative to a foreclosure

November 27, 2012

Mortgage defaults and delinquencies are common. Distressed properties account for nearly one-third of residential transactions. Foreclosures, short sales, and banks’ REO (real estate owned) and bulk sales have become terms and methods for purchase and sale. Another method of selling these type of real estate and gaining popularity is the receivership. Receivership has grown over the past few years. Receivership is an alternative to a foreclosure proceeding (where a lender takes ownership of the project) or a bankruptcy proceeding (a trustee takes control of the property).

Receivers are court-appointed individuals given custodial responsibility of a property that serves as collateral for a loan in default. Receivers displace the property owner as the active property manager and make most decisions regarding management and operations. These often include making improvements, completing construction and getting the property ready for sale. The court order appointing the receiver spells out the receiver’s authority.

A property in receivership can present a more appealing situation, because there’s more control than in a short sale or a foreclosure, and purchasers can use standard financing. The court order approving each sale confirms that the buyer is receiving his or her real estate free and clear of all liens, including those of contractors or lenders. After the real estate is sold, the receivership proceedings will terminate. The buyer’s rights are defined in the purchase and sale agreement.

A primary benefit of buying through a receivership often is value. Before a receiver is appointed, owners often resist resetting pricing in an attempt to save some or all of the equity invested in the property. When a receiver takes over, the receiver has the authority to set pricing based on market conditions rather than the original cost. The new pricing is often lower than the original asking price.

Receivers’ fees, as well as any fees for third-party professionals they hire, typically are paid with available cash from the property’s sale or, in the case of a commercial property, rents from operations. Generally a receiver sale is far more direct and expedient than a short sale. A short sale requires a lender to accept a purchase price that’s lower than the mortgage value, which can be a very protracted exercise and sometimes results in no sale at all. A receiver sale typically has a set price and legitimate offers accepted by the receiver usually are approved by the court.

The court approval process takes about as long as the buyer’s financing approval. The sale of the property then closes much like a traditional real estate transaction. Mortgage lenders may choose to use receiverships instead of foreclosures, because the costs and liabilities associated with foreclosure can be long, drawn out and expensive. For example, a foreclosure can take several months and involves a great deal of legal and administrative fees. In addition, the borrower in default maintains control of the property until the foreclosure has been completed. This can substantially increase the risk of additional costs.

McCormick Partners Realty has seen an increase of receivership sales in the past couple of years. Lenders are not alone in using this method of sale, property owners can also use this method as a means of “getting out of a bad real estate situation” Contact us for more information: Ruben Colon 773-425-5934

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: