Monday, November 8, 2010

Order Allowing Receiver To Sell Property Before Judgment Reversed

In Shubh Hotels Boca, LLC v. Federal Deposit Insurance Corp. (4D10-2821), the Fourth District reviewed a trial court's order allowing a receiver to sell a hotel.  The lender provided a mortgage to the hotel and the hotel defaulted on the mortgage.  The court stated:
Lender filed its complaint to foreclose the mortgage in mid May 2009. All of its claims relate to liability under the debt created by the loan. Along with its initial pleading the lender moved for the appointment of a receiver. The mortgage provided for the appointment of a receiver upon default for the purpose of preserving the real property and appurtenances, to protect the property during foreclosure proceedings, and to collect rents. The trial court appointed the receiver and placed him in control of all assets of the owner wherever located. The order did not authorize the receiver to sell the mortgaged property before a final judgment of foreclosure.  In January 2010 the receiver reported to the court that the property was in a distressed condition, the operation of the hotel was losing $28,000 monthly, and that he was unable to raise borrowed funds to continue operation. That led to lender’s motion to sell the property as soon as a buyer could be found.
Thereafter, the receiver found a buyer willing to purchase the property for $9 million.  The trial court approved the sale and the hotel appealed.

The Court first stated that the lender did not cite any statute that would have authorized the receiver to sell the property. Therefore, the court stated that it was required to look to the terms of the actual mortgage documents and after quoting the documents the Court stated:
It is plain to us that this receivership provision does not purport to give the receiver any power of sale of mortgaged property before the entry of judgment foreclosing the mortgage. Indeed, it explicitly limits the receiver’s powers to a caretaker role — “to protect and preserve the Mortgaged Property” — which includes the authority only to operate the property and collect rents....The manifest intent of their agreement excluding such a power of sale similarly leads us to reject as inapposite those cases recognizing broad general powers in equity that could allow such a receiver to sell mortgaged property before foreclosure.
The court then reviewed Florida common law relating to the power of a receiver.  "The general Florida rule is

that the mere appointment of a receiver does not itself confer any of the owner’s power or authority to sell such property. Also the general Florida rule is that the role of a receiver in a foreclosure action is only to preserve the property’s value."

The court concluded "In light of the foregoing we hold that the trial court order allowing and approving a sale by the receiver before final judgment was error."


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