Opening the Doors to Receivership Success: A Roundtable Discussion

Receivers Roundtable Presentation Outline

Receivership Sale Issues

• CCP 568.5: “A receiver may, pursuant to an order of the court, sell real or personal property in the receiver's possession upon the notice and in the manner prescribed by Article 6 (commencing with Section 701.510) of Chapter 3 of Division 2 of Title 9.  The sale is not final until confirmed by the court.”
• Courts vary on whether they will authorize sale of receivership property based on this statute and interpretive case law.
• Some courts require compliance with execution sale procedures
• Some title insurance companies require consent of borrower (defendant) and/or lien holders

Mechanics’ Lien Issues

• Civil Code
  • Until 7-1-12, Civil Code 3082 to 3152
  • After 7-1-12, Civil Code 8000 to 956
• Intent of changes to Civil Code
  • Simplify and standardize
  • Be non-substantive
  • Clarify terminology
• Preliminary notice
  • Direct contractor required notice to construction lender only
  • Subcontractors required notice to owner, direct contractor and lender
• Must use new Waiver and Release Forms
  • Progress payment exclusions
    • Retention
    • Extras
    • Identified progress payments remaining unpaid
    • Contract rights
• Notice of completion by owner increased to 15 days to record
• Mechanics lien release bonds reduced to 125% of the lien amount
• Direct contractor must record lien
  • 90 days after completion
  • 60 days after recording notice of completion or cessation
• Parties other than a direct contractor must record lien
  • After claimant ceases to provide work
  • 90 days after completion
  • 30 days after recording notice of completion or cessation
• Amount of lien is the lesser amount of reasonable value or amount agreed to be paid
  • Petition for release of stale lien
    • Hearing within 30 days of filing and Order within 60 days of filing
    • Prevailing party is now entitled to reasonable attorneys’ fees Panelists

Purchaser/Vendor Lien Issues

• Civil Code Section 3046: “One who sells real property has a vendor’s lien thereon, independent of possession, for so much of the price as remains unpaid and unsecured otherwise than by the personal obligation of the buyer.”
• Civil Code Section 3050: “One who pays to the owner any part of the price of real property, under an agreement for the sale thereof, has a special lien upon the property, independent of possession, for such part of the amount paid as he may be entitled to recover back, in case of a failure of consideration.”
• Civil Code Section 3048: “The liens defined in Sections 3046 and 3050 are valid against every one claiming under the debtor, except a purchaser or encumbrancer in good faith and for value.”
• Lien of purchaser of condo or holder of similar interest may have priority over secured lender if lender aware of their interest
• Lien priority issues should be resolved prior to receivership property sale

Environmental Issues

• Powerful tool to deal with environmental contamination and/or ongoing compliance/permitting issues
• Primary advantage:  lenders can sell, cleanup or otherwise rectify environmental problems without loan foreclosure, i.e., no mortgagee in possession, but security interest in the property is protected
• Receiver’s scope granted by Court’s authority is key, and can be modified over time
  • Receiver has quasi-judicial immunity
  • Potential exception:  In re Sundance Corp., 149 B.R. 641 (Bankr. E.D. Wash. 1993); cf. Gregory vs. U.S., 942 F.2d 1498 (10th Cir. 1991)
  • Receiver needs own environmental attorney and consultant to advise on legal requirements, options and creative fixes.
• Receiver can also sell the property with warts and all, with “clean title” but:
  • Certain liabilities – ongoing permitting or compliance issues, site contamination issues posing risks to human health and the environment will not be “scrubbed out”
  • Buyer beware – “as is” sale with no meaningful representations or warranties provided
    • Conduct due diligence including talk to regulators
    • Potential for fix or delay
• Other environmental and safety risk mitigation options
  • Buy environmental insurance (Pollution Legal Liability or PLL)
  • Request or provide indemnities with real value
  • Engage regulators with creative, site/project specific options
• Landlord’s potential liabilities left by “underwater tenant”
  • Consider actions that limit imminent threats to health, safety and the environment so that landlord’s potential liability does not expand

Property Management Agreement Issues

• Receiver’s potential termination of “branded” management agreement
• California Rule of Court 3.1179(b) – Receiver cannot enter into agreement with plaintiff/lender regarding receiver’s role following foreclosure sale or receivership termination without court approval.
• Receiver must ensure impartiality (as officer of the court) and not be perceived as beholden to secured lender (plaintiff) or any other party

Resources

• Audio of Receivership Roundtable Discussion