Receiverships

Receivership Questions and Answers

Following is a quick synopsis of the “Abandoned Housing Initiative”, sometimes referred to as the  “Receivership Program” in Massachusetts by Attorney Nyles L. Courchesne.

Massachusetts and Connecticut Real Estate Attorney

Nyles L. Courchesne, Esq., Springfield MA, Real Estate Attorney

Background of Receiverships in Massachusetts: Municipalities across Massachusetts have been participating in the Attorney General’s “Abandoned Housing Initiative” since around 2008.  The Abandoned Housing Initiative utilizes the State Sanitary Code to pressure owners and mortgage holders to bring their properties into code compliance.  If the owners and mortgage holders do not bring their properties into code compliance, the Sanitary Code provides  for the appointment of a “Receiver.”  A Receiver is a Court appointed manager of the property who is appointed to bring the property into code compliance at the expense of the owners.

Although the laws which allow for this type of enforcement have existed for decades, the novelty of this program is in its application to single family homes and smaller multifamily dwellings.  Historically, these laws were exercised when a Landlord/Owner failed to maintain a unit in a larger multi-tenant building.  These laws are now being used by local cities and towns such as Holyoke and Springfield to effect the rehab of single family, 2 and 3 family homes as well as larger multifamily buildings on a massive scale. For example, the City of Springfield is currently involved in approximately 117 active Receivership cases in the Springfield Housing Court and reportedly has several hundred more properties slated for their program.

How does the program work? The way the program works is a municipality identifies abandoned property or property with severe code violations (even if it is not abandoned), that poses health and safety risks and reports the property to the Attorney General’s Office.  The municipality’s code enforcement office notifies the  owner of the violations and after several notices and the assessment of fines, an action against the owner is brought before the Springfield Housing Court by the Attorney General’s Office with the municipality as a joint petitioner. If during the Court matter, the owner or the mortgage holder fails to present a rehab plan and follow said plan through to a result that brings the property back into code compliance, the Court may appoint a Receiver.  The Receiver can then bring the property back into code compliance.   The Court may then grant the Receiver  a lien on the property to pay for his fees and expenses to bring the property back into code compliance.

The lien is a “Super Lien”, superior to any mortgage, execution, or other lien that may be currently on record or filed after the appointment of the Receiver.  The grant of the lien has the effect of providing the receiver with a first mortgage on the property for the cost of rehab, even if there are already other mortgages in place. While the owner may not have had the means or equity to borrow the money to make necessary repairs on a home that has multiple serious code violations, the Receiver has no such constraints. The only lien that is superior to the Receiver’s lien are municipal taxes and municipal liens.  Once rehab is completed by the Receiver, the Receiver makes demand on the owner for the cost of the rehab.  If the owner is unable to pay, the Receiver can sell the property at public auction. The proceeds of the sale are first applied to the Receiver with the balance to any additional lien holders and the owner.

What properties would qualify for the Receivership Program? Any property where the delinquent taxes are not so great that the cost of rehab plus the taxes would be greater than the fair market value of the home after rehab would be a good fit for the program.  For example, if a property had $50,000 in uncollected taxes and the approximate cost of rehab was $50,000; and the fair market value of the property after the rehab was only expected to be $90,000, a receiver would lose money on such a project since the expenses are $100,000 and the resulting value of the property after Rehab is only $90,000.  A Receiver would not want to accept such a receivership.  Properties that have such large delinquent tax issues or which have complicated/costly title issues  belong in a tax title rehab program – not a Receivership.

What is the timeframe for a Receivership Case? It is the goal of the Attorney General’s Office and municipalities to appoint Receivers who can quickly complete a rehab project. (The typical plan must be completed in less than one year).

What are the requirements for being appointed as a Receiver? The Receiver must apply with the Attorney General’s Office and/or the Springfield Housing Court’s Receivership List. In order to be placed on the list and appointed for a particular case, a receiver must demonstrate that they have the financial ability to finance a rehab project; they have good credit and that they are insured.  Receivers must also keep accurate time sheets and detailed expense reports, because the receivers are required to report their progress on the repairs.  Receivers must report their progress with notice to the owner, all mortgage holders, the court, and other parties involved every eight weeks in a Receivership case.   It has been a goal of the Abandoned Housing Initiative to appoint local Receivers to create local jobs.  Local Receivers often hire local plumbers, contractors, and other local business people.

I hope that this information has been helpful.  Please feel free to contact me for legal advice concerning Receiverships in Holyoke, Springfield and other areas in Hampden County and Hampshire  County, Massachusetts.

For More information about the Attorney General’s Abandoned Housing Initiative please visit:

http://www.mass.gov./ago/doing-business-in-massachusetts/economic-development/abandoned-housing-initiative-ahi/

For more information about the City of Springfield’s Receivership Program please visit:

http://www3.springfield-ma.gov/housing/93.0.html