Spring 2012 • Issue 43, page 10

Tips to Get the Most Out of Your Real Estate Broker in Receivership Sales of Real Property

By Seymour, Phil*

Like prior recessions, receiverships have been one of the few growth areas for real estate professionals during the past few years. Echoing prior recessions, a new set of real estate professionals would like to reap the benefit of the receivership business. However, a real estate broker selling receivership real property has to understand the unique challenges and requirements that a receivership sale presents.

What is the difference between a conventional and receivership sale? Actually quite a bit… but the primary differences are: (1) receivership sales require court confirmation and possible Overbid; (2) a receiver has no emotional or personal history with the property, which has a beneficial effect of making the negotiation process more efficient and effective; and (3) unless the parties settle the case, the receiver is a seller by a virtue of a court order and not just testing the market as a conventional seller might do.

In light of these differences, a receiver’s Broker must bring unique skills and sensitivity to a receivership sale, and receivers should communicate with their Brokers freely about the following issues:

The first part of the assignment to list a property for sale is the Brokers Opinion of Value (BOV). This should be in conjunction with the Broker’s review of the Preliminary Title Report and all underlying documents along with the court order appointing the receiver. In most receiverships involving real estate (commercial or residential) you may want to get a BOV even before you post your bond and commence your receivership. If you are a rents issues and profits receiver, it will enable you to advise the lender of its possible level of recovery. If you are a receiver in aid of execution of a judgment and the real estate is your only asset, the BOV lets you know whether there is likely any equity in the property that may determine your ability to get paid and therefore whether or not to take the case.
The receiver should establish with the Broker the form and content of the Purchase and Sale Agreement before taking any property to market. The terms and conditions along with any addendums attached to the Purchase and Sale Agreement should be totally familiar to the Broker. If the Broker doesn’t know it, he or she will not be able to explain it. In the real estate brokerage community, many are not familiar with the various forms of “As Is” sale contracts used in receivership sales.
In marketing receivership properties, the Broker should focus on maximizing value while simultaneously minimizing any potential resistance to a sale that is subject to court confirmation and possible overbid. “Value Added” components create a strong connection to potential buyers. Engage brokers and principals in all marketing materials to inquire about the features of the property and the sale process.
All marketing materials must include “Subject to Court Confirmation.”
Although receivership sales are generally subject to overbid, rather than stating “Possible Overbid,” state “Call Agent for Details.” This creates the opportunity for the Broker to explain (in detail) the confirmation process and the Purchase and Sale Agreement. Buyer’s brokers frequently ask: “What if my buyer is overbid in court?” Propose an incentive such as a breakup fee to reimburse out-of-pocket expenses for the buyer’s due diligence in case the buyer is overbid. It’s not a perfect answer, but in many instances it opens the way for an offer.
Brokers should be aware that their marketing updates are included in the Receiver’s monthly report to the court and should be as detailed as possible. The parties to the litigation that may be opposing the receiver in the selling of assets will be scrutinizing all marketing efforts to makea case that: (1) the property is priced too low; or (2) the Broker is not using his or her best efforts; or (3) other issues that they may bring up. As a result, the updates are very important to show full due diligence in the marketing and selling of the property.
Whenever escrow becomes non-contingent, the receiver will petition the court for approval. The Broker should not interrupt the marketing campaign which would compromise an opportunity to produce a potential overbid.
Specific to Single Family Residential Sales: Most properties are listed with a local Multiple Listing Service (MLS). One of the MLS rules, states that when a property enters escrow, the status has to be changed from “Available” to “In Contract” or “Looking for Backup Offers”. If the status does not show “Available,” it can chill inquiries by brokers and principals that will have an impact on the ability to generate overbids. I have successfully argued the case and the MLS now allows keeping the status as “Available” even though the property is in escrow subject to court confirmation.
Even if the Broker has worked for other receivers, both Broker and receiver must remain aware that no two property sales are the same, as no two receiverships are exactly alike.
If your Broker is new to representing receivers, don’t feel you are insulting them by suggesting that they read materials that will expand their knowledge and understanding of receiverships.

These are just a few, but very important actions a Broker should take to achieve the best result from real property sales by receivers. The Broker who covers these bases will better protect the interest of the receiver and will earn the receiver’s future business.

*Phil Seymour is Executive Vice-President of Elite Properties Realty located in Beverly Hills, California. Phil heads The Seymour Group at Elite, which specializes in representing Receivers, Partition-Referees, Bankruptcy Trustees and institutional third party sellers.