Lenders have frequently been using the appointment of a receiver for distressed properties in an effort to obtain control pending the resolution of a foreclosure action. The appointment of a receiver ensures that the property will be maintained pending the foreclosure sale. However, lenders have also utilized a receiver’s power of sale to expedite the sale of a distressed asset. This raises several issues for prospective purchasers in attempting to acquire “free and clear” title from a receiver’s sale.

When acquiring property from a receivership sale, a prospective purchaser should confirm that all statutory requirements with respect to the receiver sale have been complied with and that the contract of sale with the receiver should clearly state that the property is being sold “free and clear” of all existing liens and encumbrances. This is essential in order for a purchaser to obtain title insurance for the acquired property.

Under N.J.S.A. 14A:14-7, upon appointment by a court, a receiver has the power to sell property at a public or private sale upon terms and conditions approved by the court. This statute requires notice to holders of encumbrances affecting the property and requires a demonstration by the receiver to the court that the sale of the property will reasonably benefit the general creditors without adversely affecting the interests of other encumbrance holders. Similarly, N.J.S.A 2A:50-31 provides for a sale pending foreclosure pursuant to a receiver sale. While this statute differs slightly from the previous one, the sale authority is clearly granted and both operate in the same manner.