Minimizing Risk in Receiverships: Part II

I recently blogged about how to identify and avoid potential financial risks relating to receiverships prior to filing the lawsuit. Once a lawsuit has been filed, there are additional steps that an association can take to minimize the risk that something will go wrong.

The following are some helpful tips to ensure that the receivership process proceeds smoothly until the association is (hopefully) paid in full:

1. Keep the court advised. Just like association boards and community association managers want to stay updated, most judges want to know what is happening with a receivership action on a periodic basis. Request that your receiver file reports every few months, so that the court can stay updated. Those reports are typically approved by the court with a court order, which helps protect the association if there are any issues down the road.                                                                                                                                                                                                                                             
2. Protect your investment. There are times when a property needs to be repaired to make it habitable and presentable before it can be leased to a prospective tenant. If this is the case, an association will likely need to advance those costs to the receiver. The costs can sometimes be in the thousands of dollars. To protect an advance of those funds, an association can request that the receiver obtain a ‘Receiver’s Lien Certificate’ that will secure the debt, even ahead of first mortgagees, if the receivership does not go as planned.                                                                                                                                                  
3. Maintain communication with the homeowner. Once a receivership has been filed, it is helpful to continue discussing the matter with the delinquent owner.  Many owners find the receivership process quite disturbing as they effectively lose all control over the management of their property. Keep trying to reach a resolution with the homeowner as, many times, this can result in a settlement that will ensure prompt payment to the association without incurring substantial, additional expense.