Use of Receiverships in Commercial Foreclosures
One of the most effective tools often available to secured creditors in a commercial foreclosure is the availability of a receiver.
In Indiana, a receiver may be appointed by the court in all actions when it is shown that the property, fund or rent, and profits in controversy are in danger of being lost, removed, or materially injured. Courts may similarly appoint receivers in actions in which a mortgagee seeks to foreclose a mortgage or in order to protect or preserve, during the time allowed for redemption, any real estate or interest in real estate sold on execution or order of sale, and to secure rents and profits to the person entitled to the rents and profits. However, upon motion by the mortgagee, the court shall appoint a receiver if, at the time the motion is filed, the property is not occupied by the owner as the owner's principal residence and: (A) it appears that the property is in danger of being lost, removed, or materially injured; (B) it appears that the property may not be sufficient to discharge the mortgaged debt; (C) either the mortgagor or the owner of the property has agreed in the mortgage or in some other writing to the appointment of a receiver; (D) a person not personally liable for the debt secured by the mortgage has, or is entitled to, possession of all or a portion of the property; (E) the owner of the property is not personally liable for the debt secured by the mortgage; or (F) all or any portion of the property is being, or is intended to be, leased for any purpose.
Many platform commercial loan documents explicitly contain the right to appoint a receiver, thereby rendering appointment by the court mandatory upon motion made by the mortgagee. If these loan documents do not, they should be amended to include such a provision. However, even in the absence of such language, the other factors will likely be met, and a receiver would be available. While on the surface the appointment of a receiver might appear to add additional costs, a good receiver will often pay for themselves and then some by effectively managing the property, collecting rents, and ultimately preserving value of the property during the pendency of the foreclosure. As most creditors are aware, even an uncontested commercial foreclose can take several months to complete. During this time, it is important that the collateral be adequately protected—particularly if other sources of recovery are limited or non-existent.