When The Mortgage Holder Might Have To Pay The Receiver


15 October, 2022


Mortgage Lender and Servicer Alerts

To be sure, receivers are rarely pursued in the residential foreclosure case, although sometimes it can be a good idea.  For a helpful review of that particular subject, consult 1 Bergman On New York Mortgage Foreclosures § 2.26 Receivership Primer:  The Residential Case, LexisNexis, Matthew Bender (rev. 2021).  In the commercial case, though, the appointment of a receiver is always to be considered.

One obvious aspect of the receiver equation is the actuality that the receiver must be compensated.  The (correct) general rule – and assumption – is that the receiver’s commissions are to be paid out of the funds in the receiver’s account at the termination of the receivership.  A recent case reminds, though, that the court may direct the party who moved for the receiver’s appointment (typically in the foreclosure case the foreclosing mortgage holder) to pay the receiver fees and expenses exceeding the funds on hand. (Laffey v. Laffey Fine Homes Intl., LLC, 192 A.D.3d 878, 144 N.Y.S.3d 714 (2d Dept. 2021)]  A lender or servicer never wants to be surprised by this concept.

Situations When Appointing Party Pays

When a receiver has qualified, even if no income is collected, he is entitled to some commission if his services can be found to be of any value.  Perhaps because receivers can so often be appointed without notice, the jolt experienced by a defaulting mortgagor in finding a receiver in control of the property engenders settlements of many foreclosures, sometimes before the receiver has been able to collect any income.

Statute (CPLR § 8004(a)) addresses this circumstance, providing that a receiver is entitled to commissions not exceeding 5% upon the sums received and disbursed by him.  But if in any case the commission so computed does not amount to $100, the court may allow the receiver such sum not exceeding $100 commensurate with the services rendered.

Thus, the statute provides that if some income is collected, but the commission computed is less than $100, the court may award what is called quantum meruit recovery to the receiver but only up to the sum of $100.  The incongruity is that where no income whatsoever is collected by the receiver there is entitlement nevertheless to the reasonable value of services rendered in an amount that can assuredly exceed the $100 level. (Readers will of course sense that the statute is old.)

Quick settlements aside, if a receiver is appointed in a case where some building or project is abandoned, there will be no income.  The receiver is engaged primarily to preserve the premises and he would assuredly submit a bill at his hourly rate for services provided.  Depending upon the extent of his work and the duration of the receivership, his compensation could be quite considerable indeed.  This is rather obvious and a foreclosing party would need to recognize this at the outset.

Another circumstance, which cannot be predicted, is where the case concludes but the receiver has incurred bills beyond the money he has collected.  Especially to the extent this occurrence is unexpected, it is here that the foreclosing plaintiff may be in for a shock if the court directs that the sums incurred by the receiver must be paid by the party who sought his appointment.  This can happen where the court finds the existence of specific circumstances, particularity where the receiver’s application has unusual merit or where some untoward acts on the part of the party obtaining the appointment has resulted in an increase in necessary receivership expenses or has precluded the receiver’s collection of larger sums.  Other factors a court can consider are the degree of necessity of the expenses and the benefit received by the party who moved for the receivership.

It is apparent that these instances where the appointing party may be constrained to be pay receiver’s bills and/or commissions are fact intensive.  The key consideration, however, is that such results can occur, and this needs to be contemplated at the inception by the party pursuing the receivership.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.