Since the late 1970s, my law practice has included occasional stints as a receiver, referee or trustee in one form or another, and I have learned many lessons dealing with receivers. It is helpful to discuss some of the more important ones, primarily to give counsel proposing or representing receivers a better understanding of the issues they face. These include the following:

The Appointing Order: I have yet to see a proposed order drafted by counsel (typically the lender's) that covers all of the authority that the receiver will need. Even with orders I've drafted myself, I typically discover something new that should have been addressed in the order but was not. For example, I've learned that every order draft ed by counsel should allow the receiver to use his or her commercially reasonable judgment to hire legal counsel if a tenant breaches its lease, even if only to draft a three-day notice to quit. I've also learned, the hard way, that counsel oft en fails to ensure that the receiver has the authority to request that the defendant produce all security deposits and current tenant and building files. Last, but not least, counsel is oft en not sufficiently accommodating in addressing the receiver's right to payment of fees. I prefer to allow the receiver to bill monthly and if there are no objections within a fixed period of time, allow the receiver to write a check to pay itself.

Security Deposits and Tenant and Building Files: Institutional borrowers tend to be much more cooperative when it comes to turning over security deposits and tenant and building files than non-institutional borrowers and their property managers. Legal counsel needs to beef up the obligation of the borrower and its agents to deliver whatever the receiver needs, whenever it's needed. In more than one instance, the receiver learned what payables were due only when he received a past-due notice, and there have been times when a receiver didn't even know of a past-due payable until a service has been discontinued. This is easily remedied if counsel includes strong language addressing this issue. I typically include in the order the right for the receiver to send a registered letter advising both the borrower and its property manager that, if the requested items are not delivered within five business days, the court will subject them to specific sanctions to compel production.

Communication: If a receiver is preparing to do something that could be considered at all controversial, counsel should expect to be advised in advance.

Fees: In all of the foreclosures in which I've been involved, there has only been one where the lender and borrower resolved their differences, the default was cured and the loan reinstated. That was great for the borrower and lender but became a living hell for the receiver because the order drafted by counsel allowed the receiver to get paid only upon approval of the final order. To my surprise, the borrower strongly objected to the receiver's fees (about $15,000 on a small retail property, for which the receiver had already been paid). In the receiver's final report to the court, the receiver outlined the work required to get the tenants current in their rents, after which the borrower reinstated the note. The judge reduced the receiver's fee request to $5,000 but at least allowed the receiver the opportunity to respond to her specific complaints. Fortunately, counsel had added a significant item in the original order for my benefit. Specifically, counsel had included an express requirement that that the receiver cooperate with the lender and provide it with any information requested. To support the defense of the receiver's fee, he photocopied every single email, some 150 over five months, from the bank together with his responses and forwarded the entire 14-inch stack to the judge. A week later the judge issued her decision, in which she did two things. First, she ordered that that the receiver should receive only $5,000 from the estate. However, in the next sentence, she recognized that the underlying problem was the volume of emails from the lender and ordered the bank to pay into the estate the $10,000, replacing that portion of the fee paid. Security: I have learned that on abandoned projects, fences alone do not provide much security, if any at all. Full-time guards can be prohibitively expensive, but I now know that portable monitored security cameras can be both effective and cost efficient. Counsel should grant the receiver broad discretion to arrange security. I could write a book about the tribulations of being a legal counsel in receiverships. But then no one would ever want the job.

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