Why Is Commercial Real Estate Receivership Preferable to Foreclosure?

Due to COVID-19, many commercial real estate owners are currently facing an imminent decline in property values and an increase in defaults as the economic downturn continues. How can you maximize the value of your collateral without resorting to foreclosure proceedings? Court-appointed commercial real estate receivership is a cost-effective alternative to foreclosure and bankruptcy that can successfully protect and preserve your collateral. In this article, we'll discuss the duties of a receiver in commercial real estate receivership, why this process is preferable to foreclosure, and how Dottore Companies can help commercial real estate owners who are facing the uncertainties of this pandemic.

Duties of a Receiver in Commercial Real Estate Receivership

A commercial real estate receiver is an independent, court-appointed individual who is given custodial responsibility over a commercial property that serves as the collateral for a defaulted loan. The Uniform Commercial Real Estate Receivership Acts (UCRERA) drafted in 2015 by the Uniform Law Commission outlines the extent of a receiver's powers:

• Gain control of any applicable bank accounts to collect rents, maintain and repair the property, manage leases, pay contractors and service providers, and take any other actions necessary to preserve the property's value and avoid liens against the property.
• Prevent a borrower from damaging the assets or using generated income to pay non-property expenses or other creditors.
• Install signage, list the property online, notify local brokers, obtain a property appraisal, and advertise the upcoming sale of the property.
• Determine which employees, if any, should be retained.

Once the receiver obtains an acceptable offer in consultation with the secured lenders, a motion can be filed to approve the sale. After the receiver files an accounting of its activities prior to the final sale of the property, the secured lenders can then file a motion to terminate the receivership.

Benefits of a Commercial Real Estate Receivership Sale

The foreclosure process poses significant risks to the lender because the proceedings take a considerable amount of time and incur heavy costs to complete. The borrower also stays in control of the property and its flow of income during a foreclosure. If the borrower uses property income to pay other creditors instead of making loan payments and covering the property's expenses and neglects or abandons their management duties, they put the value of the property in jeopardy.

Fortunately, commercial real estate receivership mitigates these risks. Consider three key advantages of opting for a court-appointed commercial real estate receiver instead of pursuing a foreclosure:

1. Quicker and Cheaper. A receivership sale can be completed fairly quickly and eliminates the high litigation costs and fees involved in a foreclosure lawsuit.
2. Achieve a Higher Sales Price. An experienced commercial real estate receiver aided by a knowledgeable broker has access to a greater number of potential buyers than in the case of a foreclosure, which naturally raises the sale price. In contrast to a bankruptcy trustee, a commercial real estate receiver also possesses the expertise needed to properly analyze, appraise, and effectively market the property's value.
3. All Parties Benefit. Although the receiver takes direction from the court, it acts in the best interests of both the lender and the borrower. As a result, the borrower can negotiate a more favorable resolution to its default and the lender can gain greater net proceeds from the sale of the property.

Choose Dottore Companies for a Cleveland Property Receiver

Our Cleveland property receivers here at Dottore Companies possess expertise and experience you can trust. Read our case study to learn how our court-appointed receiver Mark Dottore preserved the value of commercial real estate collateral in downtown Cleveland during litigation. Contact us today to learn how our Cleveland property receivers can help you avoid costly foreclosure proceedings and achieve the maximum value of your property.