Use of Receivers in Real Estate Foreclosures
| Publication year | 1987 |
| Pages | 988 |
1987, June, Pg. 988. Use of Receivers in Real Estate Foreclosures
This article discusses the use of receivers in connection with judicial and non-judicial real estate foreclosure actions. For consistency and ease of reference, the owner of property subject to foreclosure is referred to in this article as "owner" and the foreclosing party, whether exercising rights under a mortgage, deed of trust or other lien, is referred to as "foreclosing creditor."
A receiver generally may be defined as an indifferent person between the parties to a proceeding who has been appointed by the court to receive and preserve the property or fund in litigation, receive its rents and profits and apply or dispose of them at the direction of the court when it does not seem reasonable that either party should hold them.(fn1)
Inherent in the definition of a receiver is the requirement that an action be commenced before a receiver may be appointed. In a judicial foreclosure, a complaint seeking foreclosure must be filed. The complaint may request appointment of a receiver or a separate motion may be filed in the action requesting the appointment. In a non-judicial foreclosure, a motion for order authorizing sale under Colorado Rules of Civil Procedure ("C.R.C.P") Rule 120 must be filed,(fn2) although the appointment of a receiver may not be requested in a Rule 120 proceeding. Under C.R.C.P. Rule 66(d), appointment of a receiver may be the sole claim for relief in an action based on the grounds set forth in Rule 66(a).(fn3)
The two primary purposes of a receiver are (1) to preserve the property which is subject to foreclosure, and (2) to receive and apply the rents and profits from such property. Preservation of the property usually means protection of the property from "material injury" or "waste." (These concepts are discussed more thoroughly below.) Receipt and application of the rents and profits from the property through the receivership is important to a foreclosing creditor who is not automatically entitled to them, even after the foreclosure sale has occurred. Unless there is a separate agreement apart from the instrument creating the security interest in the property, the rents and profits belong to the owner until either (1) possession of the premises is taken by the foreclosing creditor with the consent of the owner or after the property is abandoned, or (2) application is made to an appropriate court for the appointment of a receiver.(fn4)
A receiver may be appointed under the following circumstances: before a foreclosure sale, pursuant to the statutory grounds contained in CRS § 38-39-112; after a foreclosure sale, pursuant to the statutory grounds contained in CRS § 38-39-113; in any pending action under C.R.C.P. Rule 66; and by agreement of the parties.
CRS § 38-39-112(1) authorizes the appointment of a receiver prior to a foreclosure sale upon a showing that an action or proceeding to foreclose a mortgage, deed of trust or other instrument securing an indebtedness has been commenced and (1) the security is clearly inadequate or (2) the premises are in danger of being materially injured or reduced in value as security by removal, destruction, deterioration, accumulation of prior liens or otherwise so as to render the security inadequate. If a foreclosing creditor desires the appointment of a receiver as soon as possible following commencement of a foreclosure proceeding, the most expeditious method (if supported by the facts) is to obtain an appraisal that shows that the value of the property is substantially less than the outstanding balance of the loan. The appraisal should be submitted with the motion requesting the appointment of a receiver.
If the value of the property is not substantially less than the outstanding loan amount, the only basis for the appointment of a receiver is the danger of material injury or reduction in value which would render the security inadequate. Examples of these categories include failure to comply with obligations in a deed of trust to maintain the property(fn5) and general deterioration of the property because of abandonment or neglect.(fn6)
If the facts justify the appointment of a receiver under CRS § 38-39-112(1) but none is applied for, and if the premises are abandoned by the owner, the foreclosing creditor may take possession after a foreclosure proceeding has been commenced.(fn7) Upon taking possession, the foreclosing creditor is subject to the same duties and liabilities as a receiver would be for care of the premises and application of the rent and profits.(fn8)
CRS § 38-39-113 authorizes appointment of a receiver during the period of redemption upon a showing that waste is being committed, there is a danger that waste will be committed or there is an actual probability of the security being rendered inadequate...
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