Insights
Publications

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

Resources

Firm Highlights

News

Cyber Insurance Demand Heats Up As COVID-19 Hacks Rise

Tyler Gerking spoke to Law360 for the article "Cyber Insurance Demand Heats Up As COVID-19 Hacks Rise." As far as insurance coverage being available for fines and penalties that arise out of privacy and data security laws such as...

Read More
Publication

D&O Liability Insurance in a Time of Financial Uncertainty

As companies scramble to mitigate losses arising from government shelter-in-place directives intended to halt the spread of the COVID-19 virus, the insurance world has focused on business interruption coverage disputes and lawsuits.  But if...

Read More
Publication

COVID-19 Exposure and GL Coverage: Issues for Personal Injury Claims

Though much of the conversation regarding insurance coverage for COVID-19-related losses has focused on the potential for business interruption-type coverage (see prior discussion  here ), insureds should not overlook the potential that COVID risks...

Read More
News

Insurers Challenged for Denying Business-Interruption Coverage During Coronavirus Economic Lockdown

Insurance recovery partner Ray Sheen commented in the North Bay Business Journal article, "Insurers Challenged for Denying Business-Interruption Coverage During Coronavirus Economic Lockdown." Read the article, here .

Read More
Publication

Maximizing Insurance Coverage: What Cannabis Businesses Need to Know

Farella's Cannabis Industry Education Series features Tyler Gerking discussing "Maximizing Insurance Coverage: What Cannabis Businesses Need to Know." The cannabis industry has flourished, along with it the cannabis insurance market has grown. As more carriers...

Read More
News

Farella Expands Insurance Recovery Practice With Addition of Litigation Partner Amy Briggs

Read More
News

52 Farella Braun + Martel Attorneys Listed in The Best Lawyers in America© 2021

Read More
News

Farella Defeats Builder's Risk Insurer's Defense in Lawsuit Brought on Behalf of Webcor-Obayashi Joint Venture

SAN FRANCISCO, August 5, 2020: Farella Braun + Martel has obtained a favorable ruling from the U.S. District Court for the Northern District of California granting partial summary motion and clarifying a legal doctrine...

Read More
Publication

Insurance Dispute Resolution

Farella's Real Estate Webinar Series features Amy Briggs discussing "Insurance Dispute Resolution." Businesses have filed claims seeking recovery help under their insurance policies due to various governmental closure orders arising from the COVID-19 pandemic. Losses related...

Read More
Publication

D&O Professionals Series: Tyler Gerking Discusses D&O Coverage and Litigation

Insurance Recovery partner Tyler Gerking explores current trends and observations on D&O coverage and litigation on Willis Towers Watson's "D&O Professionals Series." Read the full article,  here .

Read More