Third District Reverses Order Denying Motion for Appointment of Receiver

In KeyBank National Association v. Knuth, Ltd., et al. (3D09-0996), the Third District reversed the trial court's order denying an emergency motion for the appointment of a receiver.

After the debtors defaulted on a mortgage, the trial court ordered them to pay all rents to the lender. The debtor then failed to turn over the rents as previously ordered and the lender filed an emergency motion for the appointment of a receiver.

“A receiver will not be appointed unless certain requirements are met. First, the party seeking a receiver must show that there is a substantial likelihood that it will prevail on the merits at the conclusion of the case.” Manuel Farach, Florida Real Estate § 28:9 (2008) (citing Colley v. First Fed. Sav. & Loan Ass’n, 516 So. 2d 344, 345 (Fla. 1st DCA 1987)). That requirement is met here, for it is undisputed that the mortgage is in default and the borrowers did not show any meritorious defense in the proceedings below.

“If the rents and profits are pledged as additional security, then not using the rents and profits to pay the mortgage is a basis for appointment of a receiver.”

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The lender in this case carried its burden. The borrowers failed to show that the real property covered by the mortgage would sell for enough to pay the debt and charges. Alternatively, the borrowers did not provide “security approved by the court, to account for the rents and profits.”

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As stated in the cases cited above, the burden is on the borrowers to demonstrate that the value of the property is sufficient to pay the debt and charges due to the lender. The motion for a receiver should have been granted. In light of the foregoing, we need not address the lender’s additional argument that the borrowers are committing waste by allowing city-imposed fines to accumulate on the property.