By Jonathan H. Katz, Esq.
In Jerry Maguire, Tom Cruise plays a sports agent who writes a mission statement about perceived dishonesty in the sports management business – “The Things We Think and Do Not Say: The Future of Our Business.” This is my mission statement, Bob Sugar.
Since the mortgage crisis began in the late 2000s, some community associations were (and still are) dealing with the fallout of extraordinary delinquencies, mortgage lenders who either cannot or refuse to pursue foreclosure actions, and, in some cases, units that are so “under water” that owners have literally walked away and abandoned their units. In response to these delinquencies, law firms that represent community associations, including Hill Wallack LLP, have attempted to find creative solutions to collect these past due common expense assessments. One such solution is to request that the Court appoint a rent receiver to take over control of an abandoned unit, rent it out, and use the proceeds to pay down the outstanding arrears due to the Association.
That seems like a workable solution to a problem, right? Why should a unit sit vacant for months or even years waiting for the mortgage lender to complete a foreclosure when the unit can be used to satisfy the outstanding and ongoing common expeense assessments for that unit?
We are going to let you in on a dirty secret: rent receivers in community associations are a work of judicial fiction.
What does that mean, you ask? Put simply, unlike most traditional mortgage instruments, which specifically allow for the appointment of a rent receiver, the vast majority of community associations are granted no such authority and no such right.
So to the extent that your association is currently benefiting from rental payments as the result of a rent receiver application granted by the Court, as many of Hill Wallack’s association clients are, that is due solely to the discretion of a Judge and, most likely, the persuasive argument of community association counsel.
The Appellate Division makes that fact abundantly clear in a recent case denying the appointment of a rent receiver. In Woodlake at King’s Grant Condominium Association, Inc. v. Coudriet, the Association’s request to appoint a rent receiver was denied by the Trial Court. The Association appealed, and the Appellate Division agreed with the Trial Court that the Association failed to demonstrate any entitlement to the appointment of a rent receiver. Moreover, both the Trial Court and the Appellate Division were quick to point out that the Association’s counsel neglected to put the mortgage lender on notice of the rent receiver application, which would have afforded the lender the opportunity to be heard.
The truth is that the appointment of a rent receiver is and has always been a discretionary decision to be made by the Court subject to certain equitable considerations, even in the unlikely event that there is a contractual provision allowing the assignment of rents to the Association. And generally, a receiver will only be appointed when it appears necessary for the protection of the requesting party, such as when there is an inability of the owner to pay the debt and the owner fails to make repairs, resulting in waste of the property.
So what is the moral of this story? The answer is simple. Rent receivers may still be a viable avenue for associations to collect delinquent assessments, but these applications must be prosecuted correctly, on notice to the mortgage lender, and clearly address the equitable considerations of concern to the Court. In addition, since the appointment of a rent receiver is a discretionary, whether the Court will grant an association’s request depends on several factors, most important of which is what Judge is deciding the request, which will be based on the location of your association. However, there is more than one way to skin a cat, and rent receiver applications are not the only way to collect from delinquent unit owners.
The attorneys in Hill Wallack’s Community Association’s group are recognized for providing insight and innovation in the collection of delinquent assessments. Our experience spans more than 30 years, and we aggressively represents associations in assessment collection matters (including bankruptcies and foreclosures). And most importantly, we can assist your association in collecting delinquent assessments the correct way, the right way. If you have questions about assessment collection, rent receivers or what Hill Wallack can do to assist your association, please reach out to one of our Community Associations attorneys.
You can read the Appellate Division’s decision in Woodlake at King’s Grant here.
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