Arizona commercial lenders have long been able to have a receiver appointed to protect and preserve property pending foreclosure following a default under a commercial loan. New Arizona statutes, ARS §33-2601 et seq., the Uniform Commercial Real Estate Receivership Act, have expanded the benefits available to lenders by getting a receiver appointed over commercial property and the personal property related to or used in connection with that real property.
The new laws provide several important benefits:
- The appointment of a receiver results in an automatic stay prohibiting any actions or proceedings by other creditors to attempt to gain possession or control of receivership property or to enforce earlier-obtained liens or judgments against receivership property. ARS §33-2613. This type of stay has previously only been available to debtors/borrowers who have filed bankruptcy proceedings. The lender can now control the timing and imposition of the stay.
- The receiver has “strong arm” powers – the same status as a lien creditor under Article 9 of the Uniform Commercial Code with regard to personal property and fixtures, and the same status as a lienholder over real property. ARS §33-2608.
- The receiver can collect debts owed to the borrower, can demand turnover of and recover property of the debtor being held by others, and can prohibit third-parties from satisfying their obligations to the debtor/borrower by making payments directly to them instead of to the receiver. ARS §33-2610. The court has the power to sanction third parties not complying with receiver demands.
- During the receivership, the receiver can not only collect, control, manage, conserve, and protect receivership property but can also operate businesses that are receivership property, incur debt and pay expenses related to the receivership property. ARS §33-2611(A).
- A court-approved sale of real or personal property is made free and clear of existing junior liens and any rights of redemption. ARS §33-2615(B).
- A lender’s request for appointment of a receiver, the appointment of a receiver, or an application of receivership property or proceeds to the lender’s secured obligation expressly does not make the lender a mortgagee-in-possession, does not make the lender an agent of the borrower/debtor, does not constitute an election of remedies, and does not limit any other rights available to the lender with regard to the secured obligation. ARS §33-2623
The next time you have a loan that looks like it might get into trouble, or if you’re confronting one now, contact the author, Pat Nolan, at 602-256-4426 or firstname.lastname@example.org, or get in touch with any member of Gammage & Burnham’s Commercial Lending Practice Group to explore all of your options.