Minimizing Risk in Receiverships: Part I

A receivership can be an effective method for collecting delinquent association debt. Many associations, however, are hesitant to pursue this remedy as they feel that receiverships are ‘risky’ or not cost effective. However, performing some due diligence prior to filing a receivership lawsuit, can ensure that the process moves quickly and effectively while providing nominal risk to an association.

Prior to filing a receivership lawsuit, an association should research the following:

  1. The amount of equity in the property.  This is critical since a public trustee (mortgage) foreclosure sale will effectively terminate the receivership.  If a homeowner’s property has equity (the remaining value in the property after the first Deed of Trust, taxes and any mechanic’s liens are paid off), an association may be able to collect the remaining amount owed from the foreclosure sale proceeds.
  2. The fair market rental value of the property.  If the association debt to be collected is, for example, $10,000 with monthly assessments of $400, it will take a tremendous amount of time to collect a debt if the anticipated monthly rental income is only $700.
  3. Whether the property is vacant or tenant occupied. A property that already has a tenant in place will help speed along a receivership and likely keep the cost down. A vacant property may need repairs before it can be occupied and a new tenant will also have to be located.
  4.  The receiver to be appointed. Utilizing a receiver that is experienced, responsive and has a good reputation with the courts is worth its weight in gold. While some receivers charge less than others, having an experienced receiver on your side can prevent some serious issues and major expenses in the future. 

Stay tuned for my future blog post that will further discuss how to minimize risk after a receivership lawsuit has been filed.

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