Yesterday the NY Times released an article about court-appointed receivers who, in the cases mentioned, are politically-connected lawyers that can collect lucrative compensation for their work in buildings in foreclosure. However, the article focuses primarily on rewards given to receivers that have been appointed to relatively well maintained buildings. That is not always the case with foreclosures. Interestingly, both Marc Landis and Howard Vargas, who were mentioned in the article, were appointed receivers for the famously distressed Ocelot properties.
The article only takes a glancing look at the tenants in the properties mentioned, and their experiences dealing with court-appointed receivers. Tenants in distressed housing in foreclosure have varying, but usually frustrating, experiences with these appointed receivers in their buildings.
When a building is in foreclosure, the mortgagor usually requests the appointment of a receiver to ensure that the building is maintained during the foreclosure process. The receiver comes into the building and collects rent, which they are supposed to use mostly to make repairs. If a building is in good condition and at nearly full occupancy, this system would probably function fine. However, that is not always the case.
When a building that has been neglected for years falls into foreclosure, working with receivers is much more complicated. First, it is important to note that there are some seemingly “good” receivers who want to do what they can for the building, but even they have significant problems in distressed properties. Distressed properties are more likely to have many vacant apartments, thus reducing the revenue from the building and the amount of money a receiver has available to make needed repairs. Also, since distressed properties have much more serious conditions issues which require more intense and frequent work, the receiver’s limited funds to make repairs can dry up quickly.
If they need more funds a receiver can request that the mortgagor provide them, however as mentioned in the Times article, this is not an easy task. Recently there have been several attempts by tenants, such as in the Milbank case, to pursue legal action that would force the mortgage holder to take on more responsibility for conditions of the building. Frankly, a receiver, even a good receiver, is never going to have the funds to fully renovate a building, which is what many of these buildings need.
Not all receivers come into the buildings with the best intentions. There have been cases where tenants are never informed that they have a receiver, or tenants get a notice that they need to start paying their rent to a receiver, but don’t have anyone coming in and making repairs to their apartments. In these situations the tenants have no one to turn to for repairs besides each other and HPD, neither of which will be able to provide all the services the tenants need.
The Times story mentions that some city officials are looking into passing legislation that would force receivers to be approved by HPD. This legislation would be important because receivers who are collecting fees without actually maintaining the building could be held accountable and barred from doing the same to other buildings.
However, this legislation would not solve the problem that there is just not enough income from distressed buildings to cover the buildings’ needs. To deal with this larger issue, someone (*cough, cough* the lender) has to step up and take responsibility for the years of neglect and make sure the buildings are safe and sanitary for the tenants who are living through the foreclosure.