Q: I am a federal receiver. One of the assets
in the estate is a small office building. I want to list it with a broker
and sell it. My attorney told me that before I can sell the property
through a broker I have to have the court appoint three (3) appraisers to
appraise the property and then the sales price has to be at least
two-thirds (2/3) of the appraised value. This is madness. Is there any way
around this? Do I need a new attorney?
A: No, you don’t need a new attorney. Your attorney correctly
informed you of some of the requirements for a federal receiver to sell
real property at a private sale. 28 U.S.C. § 2001 governs the sale of
realty by a receiver. That statute provides, in summary, that before
confirmation of any private sale the court shall appoint three
disinterested persons to appraise the property. No private sale shall be
confirmed at a price less than two-thirds of the appraised value.
Before confirmation of any private sale the terms shall be published
in a newspaper of general circulation as the court directs at least ten
(10) before confirmation of the sale. A private sale shall not be
confirmed if a bona fide offer is made, under conditions prescribed by the
court, which guarantees at least a 10% increase over the price offered in
the private sale.
Because the statute, in a number of instances, uses
the word “shall” these provisions are mandatory. Numerous cases have so
held and have indicated the court has no discretion to waive these
mandatory provisions. Acadia Land Co. v. Horuff, 110 F.2d, 354-55
(5th Cir. 1940) (“all the requirements are, by the expressed terms of the
statute, made conditions precedent to a valid sale”). Not only is the
mandatory language clear, but the companion statute, regarding sales of
personal property by a receiver, provides: “Any personalty sold under any
order or degree of any court of the United States shall be sold in
accordance with § 2001 of this title, unless the court orders otherwise.”
28 U.S.C. § 2004 (emphasis added). Because Congress added the: “unless the
court orders otherwise” language to the statute for sales of personal
property, but did not similarly so provide in the statute relating to
sales of real property, courts have held it is clear that the district
court has no discretion to waive the requirements set forth in § 2001,
relating to private sales of real property by a receiver. SEC v. Wilson,
2013 WL 1283437 *1 (E.D. Mich. 2013 (citations omitted) (“[I]t is at the
district court’s discretion whether to obtain appraisals before
foreclosing on personal property. However, ‘Congress did not confer
similar discretion on the court’ in enacting section 2001 for the sale of
real property. Under section 2001(b), ‘[t]he court shall appoint three
appraisers – no ordering otherwise. No discretion, period.’”); SEC v. T
– Bar Resources LLC, 2008 WL 4790987 *3 (N.D. Tex. 2008) (“in allowing
courts to order the private sale of personal property, 28 U.S.C. § 2004
informs that courts are to follow the same procedures in §2001(b), ‘unless
the court orders otherwise.’ Congress thus considered deviating from the
rigors of § 2001(b) procedures in relaxing the process for the sale of
personalty. The absence of any such authorization in the sale of realty
suggests that Congress intended the more stringent procedures is to be the
rule when ordering the sale of real property”).
Because of the stringent, and often expensive,
requirements for a federal receiver to sell real property by private sale,
some receivers have tried to convince district courts that the court can
somehow waive, or the parties can waive, the mandatory requirements of §
2001(b), arguing the court can approve sales if it finds them in “the best
interests of the estate.” While some district courts have allowed private
sales by receivers without complying with the requirements of § 2001(b),
those orders and unreported decisions appear to be incorrect. For example,
in SEC v. Yin Nan Wang, 2015 WL 12656907 (C.D. Cal. 2015), a
magistrate approved a private sale without the receiver complying with the
appraisal requirements or the publication requirements in §2001(b) because
the parties stipulated that the receiver could sell the property without
doing so. In approving the sale the court cited to another unreported
decision Huntington National Bank v. Najero, Inc., 2014 WL 5473054,
*1 (E.D. Mich. 2014) (“Najero”) and quoted a line from that case
which stated: While “the court cannot waive the requirements of § 2001(b),
the requirements can be waived by the parties.” A review of the Najero
case, however, shows that the court there actually denied the
receiver’s motion to sell. In denying the motion the court, citing a
number of other cases, stating: “The permissive language allowing the
Court discretion to determine what is in the best interest of the estate
is therefore limited by the minimum standards delineated by Congress of
what satisfies the best interest standard. These standards cannot be
waived by this Court. The word shall in 2001(b) unambiguously means
must, and so this Court interprets the word just so. Before confirmation
of any private sale, a court must appoint three disinterested persons to
appraise the property. One will not do.”Najero at *1 (emphasis in
original, citations omitted). The Najero court then went on, in
dicta, to cite another unreported case, Huntington National Bank v. Big
Sky Development Flint, LLC, 2010 WL 3702361 (E.D. Mich. 2010), where
the court approved the sale of property by a receiver who did not comply
with § 2001(b) because the court held the parties had stipulated – in the
order of appointment – that the receiver could sell property without
complying with § 2001. There was no such provision in the order appointing
the receiver in the case before the Najero court and, therefore,
the court denied the receiver’s motion to approve the sale.
The assertion, therefore, that the parties can waive
the mandatory requirements of §2001(b), giving the court authority to
approve a receiver’s sale of real property is very questionable.
Generally, courts have no authority to waive mandatory requirements
imposed by statute, nor do parties. Lamie v. U.S. Trustee, 540 U.S.
526, 534 (2004) (“[W]hen the statue’s language is plain, the sole function
of the courts – at least where the disposition required by the text is not
absurd – is to enforce it according to its terms”).
Therefore, if you, as receiver, want to sell real
property by private sale you need to comply with the requirements of §
2001(b). However, there is no requirement that you have to sell real
property by private sale. The onerous requirement of obtaining three
appraisals and then not being able to sell the property for less than
two-thirds of the appraised value do not exist if a receiver wants to sell
real property by public sale.
28 U.S.C. § 2001(a) and § 2002 govern the sale of
real property by public sale. All they require is that the sale be
conducted at the courthouse of the county, parish or city in which the
greater part of the property is located or on the parcel itself, as the
court directs; that the sale be upon such terms and conditions as the
court directs; and that notice of the sale be published once a week for at
least four weeks prior to the sale in at least one newspaper of general
circulation in the county, state or judicial district where the property
is situated.
There are many companies that can conduct public
sales of real property. Such sales do not have to be limited to live
absolute auctions, but can consist of sealed bid auctions, minimum bid
auctions, or auctions with a reserve, whichever the receiver and the Court
believe would be in the best interest of the estate. Therefore, if you do
not want to comply with the mandatory requirements set for in the statute
for a private sale, you may want to consider selling the property by
public sale.
*Peter A. Davidson is a Partner of Ervin
Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes
representing Receivers and acting as a Receiver in State and Federal
Court.
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