August 21, 2020

Appointment of a Receiver: (2) Other Circumstances

There are numerous circumstances that may justify the appointment of a receiver over an owner of real estate beyond the enforcement of a lender’s rights under a deed of trust. The Act attempts to quantify those into the four circumstances: (1) Before entry of a judgment; (2) After entry of a judgment; (3) On equitable grounds; and (4) To protect the real property and secure rents during the “time permitted for redemption”.  A.R.S. §33-2605(A).

 (i)   Prior to Entry of a Judgment.

A person may obtain the appointment of a receiver if she proves that (1) she has an “apparent” right or interest in the real property that is the subject matter of the lawsuit; and (2) that property or its potential to generate revenue: (a) has been or there is a “danger” that it will be subjected to “waste”, “loss”, “dissipation” or “impairment”; OR (b) has been or is about to be “the subject of a voidable transaction”; OR (c) needs to be “protected and preserved” or the parties’ rights need to be “protected or preserved”. See A.R.S. §33-2605(A)(1).

This subsection clearly contemplates the classic situation where a creditor files a fraudulent transfer action and he can prove that there has been or there is an imminent risk of a fraudulent transfer.  The type of “right” or “interest” the creditor would have to possess in order to trigger relief under this subsection is unclear.  For example, the holder of a recorded judgment in the county in which the property is located clearly would possess such a right.  The plaintiff in a breach of contract action against the owner of real property arguably does not hold an “apparent” interest in that property even though a judgment may be relatively certain.  Finally, a large shareholder of a closely held corporation arguably would hold a “right” or “interest” in real estate with substantial equity owned by the corporation sufficient to justify the appointment of a receiver under this section where she learns that the other major shareholder has caused the fraudulent transfer of that asset. 

(ii)      After the Entry of a Judgment.

Unsurprisingly, a judgment creditor will be able to obtain a receiver more easily and in a broader range of circumstances.  A person holding a judgment against the owner of real property may obtain appointment of a receiver in order to “carry the judgment into effect” or to “preserve” any nonexempt property or where the judgment has not been satisfied and the owner refuses to permit the property to be used to satisfy the judgment.  A.R.S. §33-2605(A)(2).

(iii)    On Equitable Grounds.

Courts in Arizona and elsewhere have appointed receivers where fairness so requires in appropriate circumstances. Section 33-2605(A)(3) is a catchall provision allowing for appointment of a receiver having all the powers, rights and responsibilities under the Act in all of the situations set forth in Arizona’s decisional authorities or from other jurisdictions as long as the case involves real estate.  The Commissioners specifically observed in their Comment to Section 6 of UCRERA that:

the power of appointment “is a delicate one … to be exercised with great circumspection” by the court, which had to be “satisfied by affidavit or other suitable evidence that a receiver is necessary to preserve the property, or in exceptional cases administer the property, having in mind the rights and interests of all parties.”

UCRERA, at p. 26, citing to 1 Clark on Receivers, §49, at 53 (3d ed. 1959).

(iv)     During Redemption Periods.

A judge may appoint a receiver if it is necessary to preserve the real property or protect cash collateral during any applicable redemption period following a judicial foreclosure or judgment execution.  Section 33-2605(A)(4). Such procedures are relatively rare in Arizona. 

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