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Opening the Doors to Receivership Success: A Roundtable Discussion

6/6/2012 Articles

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

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