UNIFORM LAWS U P D AT E The Uniform Commercial Real Estate Receivership Act Brings Clarity to Receivership Procedures In 2015, the Uniform Law Commission approved the Uniform Commercial Real Estate Receivership Act in response to concerns from the real property community about the patchwork of receivership laws in various states, and even differing practices by individual judges within a state. Most states did not provide any statutory guidance on the process for appointing receivers or the scope of their powers. In states with ambiguous receivership laws, receivers who take possession of real property can be faced with decisions that are beyond the scope of the governing law, such as when or how to post a bond, the procedures to notify interested creditors, or whether it is appropriate to sell the receivership property. Twelve states have enacted the Uniform Commercial Real Estate Receivership Act (Arizona, Connecticut, Florida, Maryland, Michigan, Nevada, North Carolina, Oregon, Rhode Island, Tennessee, Utah, and West Virginia). The act offers a comprehensive, clear set of procedures for the administration of commercial property by a receiver, who is a court-appointed representative responsible for property in a variety of scenarios. Receivers may be appointed (1) to prevent waste, deterioration, or removal of real property while litigation or an appeal is pending, (2) to enforce a judgment against a parcel of
Uniform Laws Update Editor: Benjamin Orzeske, Chief Counsel, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602. Contributing Author: Jane Sternecky, Legislative Counsel, Uniform Law Commission.
Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.
real property, (3) to preserve real property while a corporation, partnership, or other type of legal entity is being dissolved or winding up, or in the event of corporate dysfunction, (4) to work on behalf of a creditor to manage or liquidate the real property of an insolvent debtor, or (5) to enforce a mortgage in default on behalf of a mortgage lender. The act provides this much-needed guidance in several ways. First, the act requires notice to those affected by the proposed receivership and provides these individuals with the opportunity for a hearing before the issuance of most orders. The act establishes that the enacting state’s court of general equity jurisdiction will have exclusive jurisdiction over receivership proceedings. To clear up ambiguity surrounding the appointment of the receiver, the act sets qualification standards for receivers, mandates that the receiver post a bond or alternative security, and requires the receiver to be independent of all interested parties. With regard to the legal effect of a receiver’s appointment, the act establishes that the receiver assumes the status and priority of a lien creditor
for transactions involving the receivership property. Once the receiver is appointed, the act requires all property subject to the receivership to be turned over to the receiver and all payments on debts that are receivership property to be made to the receiver. Under the act, creditors must file claims with the receiver to receive distributions or proceeds from the receivership property, and the receiver is permitted to recommend the disallowance of any such claims. The receiver is granted immunity from liability for acts or omissions within the scope of the receiver’s appointment. The receiver is authorized to pay necessary professionals to assist with the administration of the receivership. The act further permits the receiver to use, sell, lease, license, exchange, or otherwise transfer receivership property outside of the ordinary course of business but only with court approval. Additionally, the act gives the receiver the option to enter into an executory contract with the property owner, with procedures for both adoption and rejection of a proposed executory contract. To ensure that creditors and other interested parties remain updated on the actions of the receiver, the act requires the receiver to file interim reports during the receivership and, once the receivership concludes, a final report. Because the act grants jurisdiction over receivership to state courts, the receiver would traditionally be entitled to manage property that is within the boundaries only of the appointing jurisdiction. However, to address this issue for receivership properties located
Published in Probate & Property, Volume 37, No 6 © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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November/December 2023
