In Investors Bank v. Trylon/Crest Construction, Inc., 2016 WL 5922751 (N.J. App. Div. Oct. 12, 2016), the Appellate Division affirmed the Trial Court’s discharge of a rent receiver over the defendant’s objection that the receiver was required to make certain payments to the defendant. In October 2008, the defendant borrowed $5,200,000 from the plaintiff, Investors Bank (the “Bank”), secured by a first mortgage on property owned by the defendant. In addition, the mortgage granted the Bank the right to have a rent receiver appointed for the property. The defendant also executed, among other things, an indemnification agreement and an assignment of rents and leases.
In 2011, the defendant defaulted under the loan documents. The Bank filed a foreclosure action in 2012, as well as an action in the Law Division to enforce the note and guaranty. As part of its foreclosure action, the Bank alleged that the defendant misappropriated tenant security deposits, resulting in the Court appointing a receiver to manage the property. As part of the receivership, the receiver sent to all parties, including the defendant, monthly operating reports that were never questioned. The Bank and defendant subsequently settled the matters in November 2012. As part of the settlement, the Bank would sell the property and receive $3,500,000 in satisfaction of the loan. After the defendant failed to execute the settlement agreement, the Bank moved in both the foreclosure and Law Division actions to enforce the settlement agreement. Those motions were granted. Ultimately, the property was sold for $4,200,000, with the Bank receiving $3,500,000 and the defendant receiving the balance.
The defendant filed a motion for reconsideration of the Trial Court’s Order to discharge the rent receiver, claiming that at closing, the defendant learned that there remained certain unpaid real estate taxes, water and sewer charges that the defendant claimed the Bank and/or the receiver should have paid, as well as security deposits that should have been paid by the receiver to the defendant. The Trial Court disagreed and denied the motion, and the defendant appealed. On appeal, the Appellate Division affirmed the Trial Court’s discharge of the receiver, noting that at no point did the defendant question any accounting or monthly operating report it received from the receiver during the pendency of the action. The Appellate Division also noted that a rent receiver’s authority is “purely contractual,” and “its purpose is to protect the mortgagee’s interests by imposing a court-supervised, disinterested person to collect the rents and pay expenses[.]” With that as a backdrop, the Appellate Division held that the rent receiver’s conduct was consistent with his obligations and the Trial Court’s instructions.