I have previously addressed the issue: Can Indiana receivers sell the subject real estate? That post begged the question: When would a lender/mortgagee in a commercial foreclosure case want to pursue a receiver’s sale in the first place?
Why? There are a multitude of factors involved in a lender’s decision to pursue a receiver’s sale of the subject real estate. The pros and cons are almost endless and certainly vary depending upon the lender/mortgagee, the borrower/mortgagor, the extent of any competing liens, the nature of the real estate and the purpose of the business, if any, being operated on the real estate. With those reservations, based upon my experience and understanding, here is a list of considerations in no particular order:
- The mortgagee has no interest in taking title to the real estate.
- The mortgagee desires to quickly cut off its interest in, and thus the attendant expenses associated with, the real estate. Costs may include real estate taxes, hazard insurance premiums and receivership expenses (for the maintenance/management of the property).
- The mortgagee has reason to believe that there are one or more interested buyers laying in wait.
- Junior lien holders have a greater chance of being paid because the receiver’s sale, due to enhanced and targeted marketing, as well as a more organized transaction, presumably would net more proceeds than a sheriff’s sale.
- Similarly, a guarantor of the debt may be particularly interested in this approach as a receiver’s sale theoretically should result in a higher sale price and thus a lesser deficiency judgment for which the guarantor may be responsible.
- In complex cases involving multiple competing liens, the replacement of the real estate with a cash fund may trigger, simplify and expedite a global settlement of the litigation. (Remember that a foreclosure case could last many months, meaning that a judgment and sheriff’s sale may be delayed to an indefinite period in the distant future.)
Why not? Factors weighing against a receiver’s sale include, but are not limited to:
- The mortgagee desires to take ownership of the property.
- The real estate taxes, insurance and receivership costs are tolerable.
- There is no known, immediate market for the property.
- Attorney’s fees to obtain court authority for the receiver’s sale, and the legal counsel associated with closing the sale, are relatively high and otherwise unnecessary in a standard foreclosure case.
- The foreclosure case is either uncontested, or there is a realistic possibility for some kind of settlement.
- Perhaps most importantly, one or more parties, particularly the owner/mortgagor, objects to the receiver’s sale. (Objections to the sale, especially from the mortgagor, create an insurmountable obstacle in terms of obtaining court authority for the relief.)
Hybrid? As an aside, my March 29, 2007 post In Indiana Sheriff’s Sale, Consider The Option Of Using A Private Auctioneer addressed a kind of hybrid between a receiver’s sale and a sheriff’s sale. And, unlike receiver’s sales, there is no question as to the statutory authority for this relief, and mortgagor consent generally isn’t needed. This option seemingly is used even more rarely than a receiver’s sale but should not be forgotten as an alternative in Indiana commercial foreclosure cases.
Please e-mail me or post a comment if you are aware of additional factors that may go into the receiver’s sale analysis. As always, I welcome your questions via e-mail.