22A — December 12 - 18, 2014 — M id A tlantic

Real Estate Journal


T ax I ssues & A ccounting

hen a c omme r - cial or residential property falls into By Brian Rader, Jardim Meisner & Susser, PC Rights, risks and foreclosure: Managing a mortgagee’s pursuit of rental profits W these documents, a mort- gagee may, upon default, take personal possession of the the appointment of a court- appointed rent receiver, the mortgagee may become a

mortgagee may collect rents under an agreement more formally known as an “assign- ment of rents and leases,” an agreement typically entered into by and between a mort- gagee and a debtor before the debtor defaults. Secondly, a mortgage (or governing documents if the creditor/ mortgagee is a community association) may include ex- pressed language permitting the collection of rents and other profits in the event of a default. Depending on the language contained within

on the subject property, or debts associated with con- tracts entered into by the actual owner of the subject property. A court-appointed rent receiver is intended to insulate the mortgagee from liability. Generally, a rent receiver is expected to secure the property, gain control of all operating accounts, notify all vendors, handle existing contracts and leases, docu- ment the current condition of the physical property and assure proper levels of insur- ance are in place. However, accounting must be a rent re- ceiver’s paramount concern. A rent receiver must pay all necessary expenses associ- ated with the property, and compensation arrangements must be carefully negotiated and documented. The rent receiver must conduct itself in accordance with any ap- plicable court orders, and is not expected to take orders or directions from the ac- tual creditor. Since the rent receiver is acting as an arm of the court, it is insulated from personal liability. Fur- ther, since the mortgagee has moved for the appoint- ment of a rent receiver, it is also insulated from liability; however, the mortgagee is expected to disconnect from the management and control of the property. Failure to do so may result in an unwanted finding that the mortgagee is a “mortgagee in possession.” Accordingly, before under- taking such a responsibility, a rent receiver must plan accordingly, and consider the financial circumstances sur- rounding the subject property. Similarly, prior to petitioning the court for a rent receiver, a mortgagee must review its mortgage (or governing docu- ments) to ascertain whether it is legally capable of collect- ing rents without becoming a “mortgagee in possession,” or petitioning the court for the appointment of a rent receiv- er. The mortgagee must also consider whether the risks and liabilities associated with becoming a “mortgagee in pos- session” offset the benefits of retaining personal manage- ment and control (assuming the mortgage documents (or governing documents) permit the mortgagee to take per- sonal possession). n

foreclosure a mortgagee may seek to mitigate its loss by col- lecting rent- a l i n c ome p r o d u c e d by the fore- closed prop-

If a mortgagee personally takes possession of the subject property, without the appointment of a court-appointed rent receiver, the mortgagee may become a “mortgagee in possession,”

property, i.e., “mortgagee in possession,” or seek the ap- pointment of a rent receiver during the pendency of a foreclosure action. If a mortgagee personal- ly takes possession of the subject property, without

“mortgagee in possession,” a designation which carries with it certain unwanted li- abilities. For example, since a “mortgagee in possession” takes personal possession of the subject property, it may be liable for torts committed

Brian Rader

erty. Indeed, there are a number of ways by which a mortgagee may pursue the collection of rents. First, a


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