Based on progress to date, a Model Act on Appointment and Powers of Real Estate Receivers may be making its way to a state legislature near you within the next couple of years.  The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws to prepare the model act met again in late September, 2013, to review the latest working draft of the statute.  A detailed memo issued after the Committee meeting identifies various tentative decisions and follow-up items in anticipation of the next Committee meeting scheduled for Spring, 2014, and a hoped-for first reading of the model act at the Conference’s 2014 Annual Meeting.

The model real estate receivership act is comprehensive in scope, intended to eliminate much of the uncertainty that exists in many states, where receivers are appointed pursuant to a court’s general equitable powers to appoint a receiver and the blanks are left to be filled in by the court and the parties. Among the most significant, in our view, concepts addressed in the model act include: (i) whether a court must honor a provision in a mortgage that entitles the mortgagee to appointment of a receiver upon default; (ii) who has standing to seek appointment of a receiver; (iii) expressly providing authority for the receiver to sell the mortgaged property, outlining the potential ways in which the sale process can be conducted, and specifying whether and under what circumstances the sale can be made free and clear of liens and redemption rights; (iv) introduction of an “automatic stay” concept analogous to (but not as comprehensive as) the bankruptcy automatic stay; and (v) likewise analogous to the power of a bankruptcy court, authorizing the receiver to assign and reject executory contracts and leases.  On this last point, the most recent draft of the model act would preclude rejection of a lease where the tenant is not in default and has an enforceable nondisturbance agreement.

While some states (most visibly Minnesota and Washington, in the drafting Committee’s eyes at least) have an existing statutory framework that deals with real estate receiverships with differing degrees of detail, and receivership practice and receivership orders have over the past several years begun to incorporate more and more of the procedures and substance covered by the proposed model act, the reluctance of many courts to appoint receivers and, after appointment, authorize activity that would be considered outside of the traditional “custodial” role of the real estate receiver, makes receivership appointment an unreliable proposition for many mortgagees.  The model act, if ultimately published and enacted by state legislatures, would bring an important level of predictability to what can now be an uncertain area, albeit coupled with the introduction of new receiver powers that certain constituencies will be reluctant to award.