The Role of a Receiver in a Foreclosure Action in New York State

Once a plaintiff files a foreclosure action, the next step in the procedure is generally to have a Receiver appointed by the Court. The reason for this is that foreclosure actions can take quite some for a Court to resolve. It would not be unusual for a Court with a busy docket (such as those in Queens, Brooklyn, or Manhattan) to take more than a year to resolve a foreclosure action. During this period of time, it is important that the property be physically maintained, the property’s expenses be paid in a timely fashion, and that the property’s income, if any, be collected by the proper party.

The court-appointed Receiver is the mechanism generally used to achieve these goals. A Receiver is an individual appointed by the Court to manage a property during the foreclosure process. Generally, they are attorneys, but this is not a legal requirement. Retired court personnel, such as judges, also are often appointed as Receivers.

The first step in having a Receiver appointed in a foreclosure action is to consult the legal documents which are the basis of the action, such as the mortgage and note. If the documents have been properly prepared, they will contain a clause permitting a Receiver to be appointed, without notice, in the event of a default on the loan. Once a foreclosure action has been filed, the attorney for the foreclosing party should then file an ex parte (without notice) application with the Court, requesting that a Receiver be appointed for the property in question. This application should contain an Affidavit from the plaintiff stating that the loan is in default, as well as copies of the documents entitling the plaintiff to the appointment of a Receiver in the event of default.

Assuming the application is done correctly, the Court will issue an Order naming a Receiver for the property. Once the Receiver has been appointed, the Receiver must file an Oath with the Court, as well as post a bond with the Court for the performance of his or her duties. The Receiver then becomes manager of the property and is generally responsible for the collection of rents, payment of expenses, and general maintenance during the duration of the foreclosure action.

Once the Receiver has qualified by filing the Oath and posting the bond, the next step is to issue notices to any tenants in the building. These notices are known as notices to attorn. They advise all tenants that the building is in foreclosure and to pay all rents not to the owner or landlord, but to the Receiver instead. If the tenants refuse to comply with these notices, the Receiver may seek Court authorization to commence eviction actions against the non-complying tenants. The Receiver will also notify the owner to forward all bills for the property, such as utility and tax bills, to him for payment. The Receiver may apply for the Court’s permission to hire a managing agent for the building, if the building is large enough to require same. Otherwise, the Receiver will act as building manager and will be responsible for maintenance and repairs.

At the end of the foreclosure action, the Receiver must account for all monies received and expended for the building. In order to be discharged as Receiver, the Receiver must make a motion to the Court to terminate the receivership. This application will generally contain an accounting, showing the expenses incurred and paid, and rents received. If there is a surplus, the Receiver should obtain the Court’s consent to remit any surplus sums to the plaintiff once a final Judgment of Foreclosure is issued and the property sold at auction.

Our firm has extensive experience in bringing foreclosure actions on behalf of commercial lending clients, and is familiar with all procedures necessary to obtain a Receiver when it is legally necessary. Please contact us if you wish to consult regarding a foreclosure matter.