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

When acquiring property from a receivership sale, a prospectivepurchaser should confirm that all statutory requirements withrespect to the receiver sale have been complied with and that thecontract of sale with the receiver should clearly state that theproperty is being sold “free and clear” of all existing liens andencumbrances. This is essential in order for a purchaser to obtaintitle insurance for the acquired property.

Under N.J.S.A. 14A:14-7, upon appointment by a court, a receiverhas the power to sell property at a public or private sale uponterms and conditions approved by the court. This statute requiresnotice to holders of encumbrances affecting the property andrequires a demonstration by the receiver to the court that the saleof the property will reasonably benefit the general creditorswithout adversely affecting the interests of other encumbranceholders. Similarly, N.J.S.A 2A:50-31 provides for a sale pendingforeclosure pursuant to a receiver sale. While this statute differsslightly from the previous one, the sale authority is clearlygranted and both operate in the same manner.