Bulletin: SLS2011014

Dear Associates:

A receiver is appointed by a court and acts on behalf of the court to take charge of, preserve, and manage real or personal property.

The basis for appointing a receiver varies based upon the jurisdiction. Mortgagees often seek a receiver for an encumbered property when the mortgagor has defaulted on the mortgage and abandoned or neglected the property, or if there is a concern that the property will decline in value. A receiver can also be appointed by a federal court.

The powers and duties of a receiver vary based upon the jurisdiction. The powers and duties are defined by statute, case law, and by the terms of the order appointing the receiver.

In some states, the receiver's powers may include the right to sell the subject property. In other states, sales by receivers are not permitted. In some states, the receivership statutes are silent or unclear regarding the right to sell real property, or case law is absent. Pursuant to 28 U.S.C. § 2001, real property may be sold by a federal receiver at either public or private sale.

Please consider the existence or absence of the following factors, among others, when evaluating a request to insure a sale of property by a receiver:

• Authority of the receiver: federal or state statutes and/or case law authorizing: (a)
  appointment of a receiver, and (b) sale of real property by a receiver;
  
  
• Compliance with applicable law (e.g., for appointment of receiver; and relating to the
  sale, e.g., publication of proposed sale, valuation, public sale vs. private negotiated sale,
  requirement of court approval, etc.)
  
  
• Proof of notice to all affected parties, including: (a) owner/mortgagor, (b) secured
  lenders, (c) other lienors; of:

  (i) the appointment of the receiver; and
  
  (ii) the sale of the subject premises;

• Proof that all interested parties have subjected themselves to the jurisdiction of the court
  (e.g., made an appearance);
  
  
• Court order ordering/confirming the sale by the receiver:
  
  
  • What is the basis of the court's authority to order a sale of real property; consider
    whether or not there is clear case law or statute empowering a court to order a
    sale of real property by a receiver;
    
    
  • Disposition of all liens (both voluntary and involuntary); is the sale purportedly
    "free and clear" of all liens; will liens be satisfied from proceeds of the sale; will
    there be sufficient proceeds?
    
    
  • Existence or absence of requirement in the court order requiring all lienors to
    deliver releases in recordable form; consider requiring releases to be prepared
    and held in escrow by the issuing office pending the closing;
    
    
  • Federal taxes liens; consider the availability of a Certificate of Release or a
    Certificate of Discharge;
    
    
  • Disposition of taxes; consider the likelihood that the taxing authority will clear
    outstanding and delinquent taxes (including fees and penalties) if the sale is
    purportedly "free and clear" of taxes; consider requiring prior written
    confirmation from the taxing authority that all taxes, interest and penalties will be
    cleared upon closing;
    
    
  • Payment of documentary and transfer taxes; consider the potential impediment to
    recording the deed if the sale is purportedly "free and clear" and if such fees are
    not paid;
    
    
• Ability to clear exceptions and provide extended coverage: what form of seller's affidavit
  and indemnity will be available from the receiver; who will sign affidavits and other
  closing documents.
  
  
• Actual or potential objection to the sale by the owner/mortgagor;
  
  
• Potential conflict between the foreclosure action and the sale by the receiver; will the sale
  by the receiver extinguish the mortgagor's right of redemption;
  
  
• Evidence/documentation of consent or acknowledgement or waiver of objection to the
  sale by the owner/mortgagor; consider requiring joinder or acknowledgment of the deed
  by the owner/mortgagor; consider requiring the borrower to waive its right of
  redemption;
  
  
• Bankruptcy/insolvency of the borrower/mortgagor; generally, a receivership is stayed
  upon the commencement of a bankruptcy case.

If you are asked to insure a transaction involving a sale by a receiver, please contact an underwriter.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.