When a commercial property goes into foreclosure, the lender will do everything in its power to preserve the value of the property, as well as ensure that any rental income generated by the property is put toward maintaining the property and paying off the loan.

How does the lender ensure this? By seeking the appointment of a receiver immediately after a commercial loan goes into default. The receiver is a third-party individual or entity appointed by the court who is tasked with preserving the property that secures the loan when the lender can demonstrate that there is a risk of damage to the property or a loss of rental income from the property.

Here’s an overview of what you need to know about commercial receivership in the U.S. Virgin Islands.

The elements of commercial receivership

Different courts have different tests for appointing receivers, but the common elements are a clause in the mortgage that provides for the appointment of a receiver upon the borrower’s default, and an actual default under the loan itself.  Other elements might include the solvency of the borrower, whether the value of the property is enough to satisfy the loan debt, whether waste has been committed on the property, and whether the property is in danger of being foreclosed by the government for payment of back taxes.

The procedure for appointing a commercial receiver

Usually, a lender will commence an action for the appointment of a receiver as part of its foreclosure action. The receiver will then be in charge of managing the property throughout the duration of the litigation.

Although an order appointing a receiver can be tailored according to the circumstances of the litigation, a receiver will have the following general responsibilities and powers:

• Where the property is under construction, completing that construction in a commercially reasonable manner;
• Where the property is occupied by tenants, managing existing leases, entering into new leases,  and collecting rental income;
• Where the property is vacant or abandoned, securing the property to protect it from potential vandalism, or (where occupied) damage purposefully inflicted by tenants;
• Arranging for any necessary repairs or maintenance to keep the property in reasonably good condition;
• Obtaining insurance and paying any taxes associated with the property;
• Managing any bank accounts associated with the property; and
• Selling or otherwise disposing of the property, with the consent of the court and (depending on the circumstances of the litigation) the lender, borrower, and/or lienholders.

Throughout the receivership process, the receiver is responsible for honoring and upholding the contractual rights of the tenants in the commercial property, who likely are innocent third parties. Receivers must safeguard the welfare of all tenants and guests, and continue to manage ongoing operations and expenses, while making all commercially reasonable efforts to maximize profitability from the property.

Receivers are also responsible for generating and submitting periodic reports to court, the lender, and the borrower, including regular accountings of financial transactions associated with the property. These reports generally include detailed information about specific actions taken in managing the property, the amount of income received from the property, any amounts spent to maintain or improve the property, and other relevant information.

Receiverships can be terminated or set aside only by court order.  Circumstances that warrant the termination of a receivership include a change in circumstances surrounding the property, such as the sale or bankruptcy of the business; the reinstatement of the delinquent loan; or the settlement or completion of the underlying litigation.

For more information about commercial receivership in the U.S. Virgin Islands and the benefits of having a receiver manage a commercial property that has gone into default, contact an experienced real estate lawyer at BoltNagi PC.

A.J. Stone is Senior Attorney in the litigation practice group and concentrates his practice in the area of foreclosures at the law firm of BoltNagi PC, a full-service business law firm on St. Thomas, U.S. Virgin Islands.