Explanation of Landlord in Receivership

Even landlords get into financial difficulty over time. With the bursting of the real estate bubble, more landlords entered into receivership than usual and this caused a lot of tenants to have many questions about the stability of their home, their lease agreement, and who they should even pay their monthly rent at the first of the month.

A landlord in receivership is essentially a landlord who is having their business affairs managed for them in some way. It's kind of like the process of having a home foreclosed upon because a bank or other financial institution is taking responsibility for the property instead of the landlord. What gets tenants in trouble is that they stop paying rent, thinking that their lease is void. That's the fast way to an eviction!

A Rental Agreement Stays Valid Until a Receivership Case Is Settled

Just because a property is in receivership doesn't mean that a landlord is actually going to lose the property. Just as a tenant goes to court and can fight off an eviction order, a landlord can regain their property. When in receivership, it simply means that the lienholder on the property is taking over distribution of income until the case is settled and tenant rent may be held in escrow during the process. A failure to pay rent by a tenant will often cause a lienholder to begin the eviction process.

Each tenant will receive a letter that their landlord has gone into receivership. Once this happens, the tenant will receive instructions about how to pay rent. This can be done through a process server, but it's usually done through certified mail. The tenant will then pay the receivership until they receive further instructions.

What If the Property Is Sold?

Even if a landlord sells their property after entering into a receivership, the rental agreement that was initially signed is valid until the end of the documented leasing period. For single family homes, it is common to offer the tenants in this case a settlement to have them move if renting the home is not on the new owner's agenda. If, however, the decision is to revert the property back to the receivership permanently, then most contracts are considered void and a tenant has 30 days to vacate the premises, although local laws might provide more time to tenants.

So how does a landlord get into this situation? Isn't rent supposed to cover issues like taxation and mortgage? It's one of the difficult issues of managing real estate, because sometimes health and safety maintenance must be done in order to keep a rental unit legally viable. If these costs add up and a landlord is unable to meet their lienholder obligations, that's when a receivership will start.

Another common form of receivership may include a bankruptcy filing, especially if it is a Chapter 11. This is often temporary until debt is restructured and then the landlord will come out of the bankruptcy and the receivership. Nothing is negated throughout this process – maintenance and rent are still required. That's the most important thing to remember if this is a situation you find yourself in right now.
Posted on May 19, 2014


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