Distressed condominiums are a great example of the need for an appointed receiver. Unit owners pay association fees trusting management to keep the property compliant. When the individual or organization contracted to manage the property fails, havoc ensues as liens, late fees and code violations begin to pile up. The association, funded by homeowners, is ultimately responsible for the clean-up. A receiver may be appointed by a court to manage what was mismanaged, often requiring a special assessment to the owners to fund the costs. In extreme cases, the fees can spiral out of control, and ultimately have no rational relation to the value of the property. Homeowners are still responsible.
Prevent the need for a receiver:
Be Proactive – If you are in a position of authority on a condo or HOA board, insist upon full disclosures and a clear scope of work, as well as budgets and estimates, in the contracting process. Ask for — and carefully review — regular reports on progress.
Be Attentive – It’s good to have trusting relationships with vendors. But trust does not mean ignoring projects for which you are ultimately responsible.
Be Decisive – Don’t allow mismanagement to continue. Quickly ask for resolution. If it doesn’t occur in the time allotted, seek legal help before things get worse.
“When project costs become excessive, sometimes a receiver is appointed to help a court clean up the mess. What happens when the fees associated with the receiver exceed the initial problem? Being proactive in receiver contracts is an ounce of prevention when looking for the cure. ~ John Mullin
If proactive attempts fall short and a receiver is appointed, the same tips apply:
Be Proactive – A clear scope of work and list of fees to be charged should be discussed in advance with your prospective receiver and then clearly spelled out in the Order Appointing Receiver. Ask for — and carefully review — receiver’s interim financial reports. They are usually filed every month.
Be Attentive – Don’t allow exorbitant fees to pile up before seeking help and raising any concerns with the court. Once the snowball is rolling, it’s tough to get it back up the hill.
Be Decisive – Don’t allow mismanagement to continue. Quickly ask for resolution. If it doesn’t occur in the time allotted, seek legal help before the cost of the cure is more than the original ailment.
When litigation requires a court-appointed receiver, you have a right to review that receiver’s qualifications and reputation and to provide your input. You should be able to trust a judge to appoint a reputable receiver. But, always remember transparency is required and accountability is expected. Be sure your legal counsel works with the judge to find a receiver that is the best solution for the problem, and keep a careful eye on the receiver’s progress and costs.
About the Author John M. Mullin, a director with Tripp Scott, focuses his practice in the areas of creditor’s rights (including commercial foreclosures, workouts and receiverships), commercial litigation, real estate litigation, shareholder disputes, trade secrets, probate and trust litigation, business torts and appellate law.
For more than 40 years, Tripp Scott has played a leadership role in issues that impact business. Contracting with management teams play a role in a company’s success. This information is shared as tips on dealing with difficulties that ensue when the team entrusted to manage fails in its objectives.