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Overview of Condominium Association Rent Receiverships in Foreclosure Actions

March 11, 2015 Posted in Community Association Law

In New Jersey, the process of a foreclosure action by a condominium association can be lengthy.  There are several factors that can cause delays in a foreclosure action.  The foreclosure department has been backlogged that thus has slowed down the processing and approval of foreclosures in the state.  Once a final judgment of foreclosure and writ of execution are issued in an action, proceeding with a Sheriff’s sale can take time as well.  Many Sheriff’s departments are also backlogged and this may cause a delay in scheduling and conducting sales of the foreclosed properties.  Lastly, some unit owners file for bankruptcy.  This puts a stay (or hold) on a foreclosure action, pending the resolution of the bankruptcy proceeding.

Since a foreclosure action commenced by a condominium association can be so long, many associations consider moving the court for the appointment of a rent receiver.  A rent receiver is a court-appointed professional, who takes control of a property and is allowed to place a tenant in the unit (or take assignment of any current tenancy in place).  The rent receiver may collect rental income and apply said income to pay off current fees and assessments owed on the property.

The rent receiver can also use the rental income to pay down the arrears owed on the property, as set forth in the court order appointing the rent receiver.  A rent receiver has the responsibility of maintaining the unit and not allowing the unit to go to waste or fall into disrepair.

A rent receiver must maintain the property and is required to stay in place only for a definite period of time – usually until the association’s foreclosure action is completed.  A rent receiver can only be appointed during a pending foreclosure action.  Often times, an association will file a rent receiver motion simultaneously with its foreclosure summons and complaint.  This will allow an association, if granted an order appointing a rent receiver, to place a tenant in the unit or take over an existing tenancy very soon after commencing its foreclosure action.  This will allow the association to “stop the bleeding” and start paying itself the monthly maintenance fees and other assessments due on the property.

To obtain a rent receivership, a condominium association must make a motion to the court, requesting that an order be issued appointing a rent receiver for the property.  N.J.S.A. 2A:17-66 allows the Superior Court to permit such rent receiverships upon application.  In order to have a rent receiver appointed, an association must make an application, via motion, to the court for an order appointing a receiver.  The burden is on the association to establish the need for a rent receiver.  The motion should also indicate that all other mortgage or lien holders (e.g., banks or lenders) have been notified of the motion requesting a rent receiver.  Lastly, affidavits or certifications in support of a motion for appointment of a receiver, made on personal knowledge, are required.

It is important to note that a rent receiver is not an agent of any foreclosing mortgagee or of the condominium association.  The rent receiver does not take direction from the association, but is only answerable to the court.  The rent receiver is responsible for reporting to the court, as directed or at certain intervals (if directed in the court order), an accounting of the rental income collected and spent on the property.  The rent receiver is usually required by the court order to post a bond to protect against liability of the receiver.

Rent receivers can be useful for associations when a property has been abandoned, is vacant, and the mortgage exceeds the fair market value. An association can then proceed with its foreclosure while renting out the unit and collecting rent to pay the current monthly maintenance and assessments owed.

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