GlobeSt.com: What are the legal requirements for a court authorize a receiver sale and what types of sales are courts likely to approve or reject?

Ormond: A receiver sale requires, in most instances, a sound argument regarding while the sale of the property is in the best interest of the receivership estate and the parties to the lawsuit. In some instances a court will require approval from all of the parties to the lawsuit--but, it is not an absolute requirement. A receiver sale has many advantages particularly in that it is an “as is, where is” sale and is a sale that must be approved by court order. Hence, any problems down the line with the sale are usually buyer's responsibility as the court order has “wiped” the parties and the receiver “clean” from any liability.

GlobeSt.com: What are the court rules regarding a receiver's neutrality?

Ormond: A receiver's neutrality is extremely important and California, in particular, has very strict requirements of neutrality by the rules of court that a receiver and the parties to a receiver action must abide by. There are currently a group of attorneys seeking claims against lenders and receivers for violating these neutrality requirements and it is an issue that lenders and special servicers need to be conscious of when seeking a receiver. The rules of court particularly do not allow any pre-receivership agreements or understandings—which a lender or servicers’ counsel must understand in order to avoid common pitfalls. I have been engaged in many cases recently in an effort to “clean up” neutrality concerns or overlooked issues and to properly disclose to the court the nature of the receiver's role and compensation. There can be no quid pro quo between a lender and a receiver.

GlobeSt.com: What are some of the issues in selling a real property from receivership today and what are commercial real estate concerns for receivers to sell real property?

Ormond: Many buyers do not fully understand that a receiver cannot and should not provide any representations and warranties. In recent cases, particularly on bigger transactions, we have been careful to provide due diligence materials to prospective buyers, but without committing the receiver to authenticating or verifying any of the information contained in such materials. As an officer of the court and a fiduciary, a receiver cannot commit the court to liability.

GlobeSt.com: When does a receiver need to hire an attorney?

Ormond: A receiver should never act as his or her own counsel, so when a true legal question arises, it is prudent for a receiver to seek court approval to hire counsel.

GlobeSt.com: How is a receiver compensated and, with that, who pays?

Ormond: A receiver can be compensated in a number of ways but the tradition form of compensation is either at an hourly rate or through a court approved monthly flat fee. With proper disclosure and court approval (and with good legal counsel) a receiver or lender can agree, post appointment, to a receiver being paid other forms of remuneration such as through leasing commissions or sale commissions. But, before seeking approval of these “creative” forms of compensation, the lender should seek appropriate counsel and seek appropriate court approval. Failing to do so will be a violation of court rules and statute.