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Receivers: An Alternative Method for Collecting Delinquent Assessments
Many associations run into unexpected hurdles in the attempted collection of delinquent accounts. One such stumbling block occurs when the delinquent owner is not residing in the property, cannot be found for service of a lawsuit, but is current with the mortgage payments.
One alternative for resolving this particular type of account is through the appointment of a “receiver”. This is a more aggressive, often times very effective, way for the association to attempt to collect on this particular type of delinquent account. A receivership is the court ordered appointment of a rental manager for the unit or residence. If an owner demonstrates a pattern of non-payment of assessments and the property is rented or vacant, not in foreclosure, and in rentable condition, you should consider seeking the appointment of a receiver. A receivership is also advisable if there is a danger of continued deterioration of the property. If the first lien holder is in the process of foreclosing the property, the duration of the receivership would be minimal and not financially advisable.
The receiver (rental manager) is a disinterested third party who manages the rental of the property, places tenants in the property if it is unoccupied, collects the rents and disburses the rents according to the court's orders. The receiver should be experienced and knowledgeable in rental property management. A majority of the rent disbursement goes directly to the association to be applied to delinquent and current assessments, with the balance applied to the receiver’s fee and out-of-pocket costs.
Criteria To Be Met Before Considering Appointment of A Receiver:
- Assessments are not current.
- The property is not owner occupied, i.e., is currently vacant or occupied by a tenant.
- The property is not in foreclosure by the lender.
- The property is in rentable condition or requires minimal expense to make it rentable.
Procedure For Appointment Of Receiver:
- The association must have a lien for delinquent assessments.
- A lawsuit requesting the appointment of a receiver along with other pleadings are filed in either county court or district court where the property is located.
- Personal service of the lawsuit is not required on the owner to get a receiver appointed. However, personal service is desirable to enable the association to get a money judgment for the delinquent assessments against the owner at the same time as the receiver is appointed.
Court Order appointing the receiver, along with a letter instructing the tenants to pay rent to the receiver, is then posted on the property or served on the occupants.
The receiver can continue to collect the rents until the assessments are current and the owner demonstrates the
likelihood of continued payment or a transfer of the ownership of the property occurs. If the owner fails to pay the mortgage and the property goes into foreclosure, the receivership should be terminated.
The receivership is terminated if the ownership of the property changes or when the receivership generated enough money to bring the assessments current, reimburse the Association for its costs, and there is assurance that the owner will keep the assessments current. The receivership is terminated by filing a motion with the final report itemizing the actions by the receiver and receivership assets.
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The Community Associations Institute (CAI) is a nonprofit organization that provides education and resources to community associations. To find out more about CAI visit www.caionline.org
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