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2012-October 8-Additions to Foreclosure Part I

2012-October 8-Additions to Foreclosure Part I

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Published by: JimersonCobb on Oct 16, 2012
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Available Remedies in Addition to an Action for Foreclosure: Part IReceiverships and Sequestration of RentsBy Kelly A. Karstaedt, Esq.
Aside from foreclosing on a piece of real property, a Lender may utilize numerous othermethods to recoup monies left unpaid on a mortgage note and to take control of a piece of property that may be losing value based on improper management. In this first installment piece,we will look at the purpose and process for appointing a receiver and sequestering rental incomegenerated by the property.Appointment of a receiver is an equitable remedy that rests in the discretion of the court.Carolina Portland Cement Co. v. Baumgartner, 99 Fla. 987, 1003 (Fla. 1930). While a provisionin a mortgage allowing for the appointment of a receiver upon default is afforded considerableweight, a receivership is not a matter of right. Id. Receivership is an extraordinary remedy
which must be exercised with caution as it is in derogation of the legal owner’s fundamental
right to possession of the property. Alafaya Square Assoc., Ltd. v. Great Western Bank, 700So.2d 38, 40 (Fla. 5th DCA 1997). The role of a receiver is to preserve the value of the securedproperty. Id. The power of a court of equity to appoint a receiver will not be exercised merelybecause it can do no harm. Edenfield v. Crisp, 186 So.2d 545, 548 (Fla. 2nd DCA 1966). Areceiver is an officer of the court who acts under the supervision of the court. SEC v. Elliott, 953F.2d 1560, 1577 (11th Cir. 1992).There is a relatively high burden that must be met by the Plaintiff before a court of equitywill consent to appointing a receiver in a foreclosure action. First, the Plaintiff must demonstratethat it has a likelihood of success in the foreclosure action. The law requires a strong reason tobelieve that the party asking for a receiver will recover before one can be afforded. Carolina at1006. Second, there must be evidence of waste or threat of impairment to the collateral before acourt can properly appoint a receiver. It is an abuse of discretion to make such an appointmentin the absence of a showing that the secured property is being wasted or otherwise subject toserious risk of loss. Alafaya at 40. In Alafaya, the Court found that evidence of disrepair to the
 property’s parking lot or degradation to the exterior of the building did not constitute waste or 
any impairment of the property. In Atco Construction & Dev. Corp. v. Beneficial Savings Bank,F.S.B., 523 So.2d 747 (Fla. 5th DCA 1988), the Court did not find waste even though there wereoutstanding property taxes owing and no hazard insurance on the property. The Court reasonedthat this did not amount to waste because the value of the property was sufficient to secure themortgage loan. Id. The Third District Court of Appeal agreed to this ruling by stating that areceiver was inappropriate where there was no showing that the owner was wasting themortgaged property or subjecting it to serious risk of loss, or that the value of the property wasinsufficient to secure the mortgage loan. ANJ Future Investments, Inc. v. Alter, 756 So.2d 153,154 (Fla. 3rd DCA 2000).A request for appointment of a receiver must either be made as a prayer for relief in theinitial complaint or as a separately filed motion. Testimony in support of the motion or requestfor relief must be taken at a hearing. The property owner must be given the opportunity to beheard at a hearing before a receiver can be appointed. Edenfield v. Crisp, 186 So.2d 545, 548(Fla. 2nd DCA 1966). A receivership hearing is an evidentiary hearing at which the mechanicsfor presenting evidence and witness testimony is akin to a bench trial.
The usual rules of evidence will apply at the receivership hearing, including the owner of the mortgaged property being allowed to give an opinion as to the value of the property. Themoving party should come prepared to identify a suitable receiver for the property should the judge request a suggestion. However, judges usually select their own receiver. The receivermust be an impartial individual, although in certain cases the owner of the property may act asreceiver if all parties assent to same.
The order appointing a receiver will delineate the scope of the receiver’s authority.
Courts are often inclined to give the receiver broad range over the duties it may perform when incharge of the property. The owner of the property should pay close attention to theresponsibilities listed in the order to ensure the receiver cannot take certain actions, such as
leasing or selling the property, without the owner’s prior approval or a hearing before the court
to make a determination.Rule 1.620 of the Florida Rules of Civil Procedure requires the receiver to file aninventory of the property, under oath, within 20 days after appointment. An inventory andaccounting of the property must be filed every three (3) months thereafter until an order
discharging the receiver is entered. Rule 1.620 also includes a remedy for the receiver’s failure
to file the required reports, including charging the receiver with the expenses associated withentering an order to file the required reports.If a receiver is appointed, a bond must be posted by the receiver with good and sufficientsurety, payable to the State, in an adequate amount to be fixed by the Court, conditioned on hisfaithful performance of his prescribed duties. Edenfield at 548. Further, some courts nowrequire the Plaintiff to post a bond as well.
When a person’s conduct is restrained, or his business or property handed
over to a receiver, the protection which such bonds afford should not belightly dispensed with, but should be zealously guarded and uniformlyenforced by the courts. Such orders for injunction and receivership may
have serious and far reaching effects on a person’s liberty of action and his
property or business. The party who initiates such drastic writs andprocesses should be made to place himself in a position of accountability,at least to the extent that the law specifies, to recompense his adversary forlosses sustained, if it should be concluded ultimately that his action whichbrought it about was irregularly or improvidently invoked, or his causewithout merit.
Belk’s Dept. Store v. Scherman
, 117 So.2d 845, 848 (Fla. 3rd DCA 1960). An indemnity bondshould be required of the Plaintiff prior to appointing a receiver. Id.Another option for obtaining immediate funds on a defaulted mortgage note is to requestthe court enforce the assignment of rents provision of the mortgage agreement. Often times amortgage will include language that, upon default, the Lender is entitled to collect any rentalincome, or other financial benefits, generated by the property. An assignment of rents may alsobe an entirely separate agreement, which must be recorded in the public records in order tobecome a valid lien.It used to be that appointing a receiver and sequestering rents paid on a piece of propertywent hand in hand. Now, thanks to a change in statutory law, one does not necessarily requirethe other. Today, a Lender may request sequestration of rents due without the need to appoint areceiver to collect the rents. Fla. Stat. §
697.07 entitled “Assignments of Rents” states as follows
in regards to a default under the terms of a loan which includes an assignment of rents:

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