What is Receivership in Real Estate?

Ask and You Shall Receive? Probably Not.

If you’re looking to buy a a new construction condo right now in Los Angeles, you’ve probably come across this term and wondered what it means for the property and for they buyer.

In a nutshell, Receivership means that the completed building/partially completed building was on its way to bankruptcy ( a lot of developers bought before the bubble burst and are underwater just like so many homeowners today) and instead of completely foreclosing on it and owning it outright the way it usually occurs with homes, the lender decides to take another route to limit its liability – because these buildings carry greater burdens then just a single family home typically does. You see, if the building is partially completed, the bank would have to decide if should be completed and then have to deal with managing construction. It would also be responsible for taxes, buyers, maintenance , etc. So in order to reduce the exposure of liability for the bank and the costs associated with managing a distressed complex, a receiver is appointed by the court as a neutral third party.

Now the receiver is in charge of managing the property so the the bank is able to focus on its expertise. The receiver is able to sell the property “as is” or even hold on to the property in the case its value could increase. Receivership also keeps the original borrower from further reducing the property value that could arise from things deferred maintenance – though it doesn’t remove the original liability from them. So ultimately, the receiver is a buffer for the bank and this party also allows them enhance the asset.

While this is a pretty good deal for the bank, and may allow a buyer to get a better than average deal on a brand new property, it doesn’t mean the process will be simple. In fact, it can be downright frustrating for buyers who either understand the process to run a certain way.

You see, typically a property purchase occurs between a buyer and a seller. But, when you’re dealing with receiver, there are three parties involved involved in the transaction. This not only stretches out time between answers, responses, etc, and there can be no real rhyme or reason to what are usually, defined time frames. The addition of the receiver to the transaction makes the most difference to the buyer. This drives the transaction up and down and sometimes around, but rarely in any form of a straight line. When buyer has money invested in a property like this, it tends to create uncertainty and nervousness. And while it may seem scary, there is an overarching method to what seems like confusing madness! And most importantly, you’re probably getting a great deal! An agent who’s had experience in this can be a help, not because they can change the way the transaction works, but they can help you understand why you can’t understand. So, just remember, there will be some emotional ups and downs that you or your agent won’t be able to control – but just put your head down, get focused and keep your eye on the prize.

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