Buying Real Property Out of Receivership

When considering the purchase of real estate that’s in receivership, there are unique considerations a potential buyer has to keep in mind. 

First, the property is being acquired “as is, where is”.  A receiver, who, pursuant to authority granted by the court, will act as the seller of the real property, typically does not provide any representations or warranties other than a representation that the receiver has the legal authority to transfer title of the real property to the buyer.  Beyond that, a buyer is on his or her own. There typically will be no indemnities and no real recourse if problems arise after closing.  If the property falls apart after closing, the buyer gets to keep the pieces and parts.  Caveat Emptor, “Buyer beware!”

That said, the purchase price a buyer can negotiate in such situations is frequently better in these situations and that lower price is very tempting. The solution?  Diligence! And lots of it!

Most receivers that I’ve ever dealt with, both in the role of representing the receiver and as counsel to the buyer, are quite cooperative in providing the buyer with as much access as possible to allow a buyer walk through the property, obtain engineering and environmental reports, and conduct whatever additional diligence a buyer feels is necessary. If a buyer is being stonewalled over access and unable to conduct adequate diligence, then walk away from the property. Sometimes no deal is better than a bad one.

Second, keep in mind that receivers often have secured creditors involved who hold the mortgage liens on the real property. The secured creditor may have strong opinions as to how a sale ought to be structured, the price that ought to be obtained, the timing of the transaction, etc. A receiver will usually take all such input into consideration whether it’s welcome or not, because the receiver has to file a sale motion with the court to obtain permission to close the sale to buyer and doesn’t want the secured creditor(s) filing an objection to the motion.   

Third, when considering property that has significant environmental issues, the buyer needs to hire the best environmental consultant he or she can afford (in these situations don’t go too cheap) early on in the process.  A good consultant can help a buyer determine the best approach to environmental diligence, including when to start the process and what environmental tests are advisable or not.  All deals have some element of risk to them, but a buyer needs to take smart risks when purchasing a property that has environmental problems and no recourse for indemnification.

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