Time for Receiver Reform

It’s hard to pin down a 100% accurate number of multifamily buildings in New York City in foreclosure. Our system of collecting data is far from perfect, and the status of many of these cases can change overnight. That being said, we estimate that about 400 multifamily buildings fell into foreclosure in the two year period between January 1st, 2010 and December 31st, 2011. (The single family number is far greater. We don’t collect data on that, but The Furman Center is an excellent resource for more information.) This unprecedented level of foreclosure has inevitably led to a tiresome backlog at county Supreme Courts, where foreclosure cases in New York State are all held. Right now, it is not unusual for a foreclosure case to drag out for over two years.

As many of our readers know, court-appointed receivers are supposed to collect rents and make repairs during the foreclosure process. You can read more about the problems tenants experience working with building receivers in our earlier post, “Receiver Reality.” Perhaps because receivers are temporary agents or perhaps because even the best receivers have a limited ability to provide lasting repairs, we have never thrown our weight behind an effort to reform the often corrupt receiver appointment process. But between the increase in the number of foreclosures and the subsequent increase in the length of time of the foreclosure process, the universe of buildings with court-appointed receivers has multiplied in size. We know some tenants who have moved into a building and moved out of it, all during the tenure of a receiver, never knowing a “real” owner. And we’re rethinking our decision to set this issue aside.

Currently, receivers are regulated by court rules 22NYCRR Part 36, which governs all judicial appointments, from building receivers to legal guardians to attorneys for incapacitated persons. Part 36 establishes of a list of qualified applicants for each category of appointment, of which receivers are one. It is under judges’ legal authority to establish education and training requirements for appointments, but this power is not exercised in practice. For building receivers, judges typically only consider issues of compensation and reasons for disqualification (conflicts of interest.) You can read more about Part 36 here and here.

We’re currently working with several of our allies to recommend that judges additionally consider potential receivers’ demonstrated level of competence at managing distressed properties as a requirement for qualification. Because they often manage the most troubled buildings in New York City, possibly for several years at a time, it has become essential that receivers have the skills to at least stabilize buildings while working with tenants in respectful ways. One idea involves recommending that receiver qualifications look similar to HPD’s qualifications to become a 7A administrator. Both officers are temporary appointees that ideally have the capability to stabilize extremely distressed housing.

We are working with allies on formulating a way to approach this issue, but we’re still in the early stages of this process. We remain hopeful: it is in the interest of tenants, advocates and lenders that properties be as best maintained as possible throughout the duration of foreclosure. Some banks have indicated to us that they often request specific receivers who they know will be responsible property managers; tenants can attest to the fact that a good receiver can be an improvement on a bad landlord.  It’s not often that we’re on the same side of the table as lenders. We’re hoping that this unusual collaboration will be helpful in moving this issue forward.

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