If a property is underwater and/or in a blighted condition with numerous are lienholders hesitant to foreclose? The answer is often receivership. If a property is underwater, but some equity exists a receiver can be appointed to take control of the property and eventually sell the property pursuant to California Code of Civil Procedure (“CCP”) § 568.5. The receivership sale must be confirmed by the court. (CCP 568.5; (People v. Riverside University (1973) 35 Cal. App. 3d 572, 582.) This allows all the lienholders an opportunity to explain their position in court unlike a Trustee’s Sale, which has no judicial oversight.
A court can also authorize a process called lien stripping, which can ensure equity is achieved and clear title is delivered to a responsible buyer. (City of Riverside v. Horspool (2014) 223 Cal. App. 4th 670, 684.) This again provides more protection than a non-judicial foreclosure trustee’s sale, because at the conclusion of the sale a confirmation hearing is held where all recorded interests have an opportunity to be heard and a judicial order has been signed confirming the sale. Of course, the confirmation order can be appealed, but the confirmation order is subject to an abuse of discretion review. Id. at 683. Therefore, the sale order is highly unlikely to reversed on appeal.
Receivership is a great remedy to resolve distressed properties and the remedy allows judicial oversight to ensure a problem asset can be turned into a productive use.