Receivership Training City of Springfield October 23 2013

Receivership Training City of Springfield October 23, 2013

Introduction & Overview Associate City Solicitor Lisa de. Sousa

Considerations Before Accepting Receivership Appointment Attorney Katharine Higgins-Shea

Considerations Before Accepting Receivership Appointment • Code Enforcement Inspection Reports: o Review major violations cited and think about ball park estimates for necessary repair, based upon your experience and judgment, to resolve the cited violation(s). o Are there emergency conditions to be dealt with? If so, are you ready and able to dive right in after leaving the courthouse? • Is this a condemned property with tenants in possession? o Are you prepared to house tenants and/or provide hotel and food allowance for all households? Consider the daily costs of these expenses, as this could include multiple hotel rooms if there are multiple tenants. • Is the property occupied? Are you able and/or ready to work with tenants?

Considerations Before Accepting Receivership Appointment • Visit the property. o o o Go to the property, take a look around. Talk to tenants and/or neighbors What condition is the exterior of the property in? How’s the neighborhood? Is the property vacant? If so, is the property currently boarded and secured? • Contact the City. Are there taxes and/or other City liens owed? Why is this important? o Municipal Liens have the priority over the Receiver’s Lien: “ In order to secure payment of any costs incurred and repayment of any loans for repair, operation, maintenance or management of the property, the receiver shall have a lien with priority over all other liens or mortgages, except municipal liens” G. L. c. 111, §. 127 I.

Considerations Before Accepting a Receivership Appointment • Consider your own capital. o Start with reviewing the code reports and inspecting. Is this a simple project or a full rehab? o How much money do you have available to sink into this project? • Consider you own and/or your company’s time. o Do you and/or your company have the ability to complete the necessary repairs in a timely manner. o Why timely? Not only does the Court and the City want the rehab to be completed in a timely manner, but the statute creating receivership prescribes it: “Upon appointment, the receiver shall promptly repair the property and maintain it in a safe and healthful condition. ” G. L. c. 111, § 127 I. • Bottom line advice. o This is a business decision and you are going to invest thousands of dollars! o Fast forward to the end of the project, the property is now rehabbed, in code compliance and going to auction, do you think this property will be marketable for sale? ? Would you be satisfied retaining the property if you were the only person who showed up to bid at the auction?

Appointment: Receivership Statute

My Client Has Been Appointed Receiver, Now What? Attorney Katharine Higgins-Shea

My Client Has Been Appointed Receiver, Now What? • READ THE ORDER !! o The Order includes all of the required steps to get this receivership off the ground. Including title exam, recording, insurance, posting the property, reports, etc. o The Order also includes deadlines for filing the following: • • The Receiver’s Motion to Approve the Rehab Plan. The first Receiver’s Report. Provide proof of insurance coverage to the Court. TITLE EXAMINATION o The order appointing receiver also requires that the receiver conduct a title examination and send a copy of the Order to all mortgagees and lien holders of record. o Get it done early! The sooner you notify lienholders, persons and/or parties of interest, mortgagees and owners that the property is in receivership, the better. Preferably you complete the title exam before you service a Motion to Approve a Rehab Plan. o Ensure the owner’s name matches the deed, including spelling. If the owner’s name and/or party’s name is incorrect, file a Motion to Amend sooner rather than later.

My Client Has Been Appointed Receiver, Now What? • TITLE EXAMINATION (Continued) o Serving the Order on the parties as required. First Class and Certified Mail is considered the best practice. o Proper notice is crucial. If your client ends up the successful bidder at the auction and wants to put title insurance, refinance and/or sell the property it is important that ALL INTERESTED PARTIES have received notice. Without proper notice, old title defects and/or issues continue to exist and will make it more difficult for your client. • TAXES o The Order appointing receiver requires that the Receiver determine what outstanding real estate taxes are due and include that information be included within the first Receiver’s Report submitted to the Court. o Why is this important? Municipal Liens have priority over the Receiver’s Lien. o Receiver’s Nightmare: Receiver doesn’t determine how much is owed to the City prior to appointment. Halfway through the rehab and after spending $30 k, the Receiver shows up at the property and notices the property has been posted as managed for the City by the City’s property manager. Receiver calls the City and finds out it was taken for the non-payment of municipal taxes and interest in the amount of $40, 000. 00!

My Client Has Been Appointed Receiver, Now What? • RECORD THE ORDER APPOINTING RECEIVER o The Order Appointing Receiver must be recorded at the Registry of Deeds. Why? Not only does the Order require you to do so, but the statute does as well for your lien to be effective: “No such lien shall be effective unless recorded at the registry of for the county in which the property is located. ” G. L. c. 111, § 127 I. o Recording lets the world know (prospective purchasers, mortgagees looking to foreclose, etc. ) that a receiver is in control of the property and has a statutory priority lien. o Request a certified copy of the order from the Housing Court Clerk’s Office: $20. 00 o Record the certified copy at the Registry of Deeds: $75. 00 • INSURANCE o The Order requires that the receiver put general liability insurance in an amount consistent with the industry standards on the property, in addition to casualty loss insurance. o The cost of insurance is part of your lien.

Order to Enforce State Sanitary Code & Appoint Receiver

Receiver’s Certificate of Liability Insurance

My Client Has Been Appointed Receiver, Now What? • INSURANCE (Continued) o Insurance protects your investment – consider how much the property is worth and how much you will be spending to complete the rehab. o The Order requires that you provide proof that the property is insured to the Court • CAN THE RECEIVER BORROW MONEY? o Yes!!! Pursuant to the statute, “The receiver shall have full power to borrow funds and to grant security interests and liens on the affected property. . ” Additionally, “lien priority may be assigned to lenders for the purposes of securing loans for repair, operation, maintenance or management of the property. ” G. L. c. 111, § 127 I. o Examples of Loan Sources: • • • Springfield Redevelopment Authority MHIC Hampden Bank Receivership Loan

My Client Has Been Appointed Receiver, Now What? • CAN THE RECEIVER BORROW MONEY? (Continued) o Before borrowing, consider not only the amount of the loan and the interest rate, but the timing for repayment. How long will it take you to complete your project? Again, fast forward to the auction, and you are the only bidder and end up as the owner – will you be able to pay the lender off on time? o Best Practice: File a Motion to Approve Borrowing of Funds before your client signs on the dotted line so all parties are aware of the loan and its terms.

Receiver’s Motion for Authorization to Borrow Funds

Next Step: Rehab Plan Attorney Patti Glenn

Next Step: Rehab Plan

Reports & Reviews Tony Witman, Witman Properties Assistant Clerk Magistrate Michael Doherty Associate City Solicitor Lisa de. Sousa

Reports & Reviews • Reports are public record • Reports keeps all parties informed of progress and costs • Reports maintain a system of checks and balances • Reports Illustrate the needs of the tenants and necessary repair work. • Reports must be accurate and transparent.

CONTENT Reports & Reviews Keep the report brief with details attached. In One Minute: • Describe property o Type – Single, Multi, Building o How did the receivership start? • Direction of the Project • Costs to Date • Attach Supporting Documentation & Exhibits o Work Performed o Planned Work o Is it going according to plan? o All costs to date o Projected Costs

Reports & Reviews CONTENT • • • Detailed description of work or activities done. Pictures of work Estimates and contracts Building permits, lead reports Copies of leases, notices to tenants etc Receipts & Invoices

Reports & Reviews TRANSPARENCY • Clearly represent all fees and surcharges and markups • Establish what is included in “management fees”, “construction oversight fees”, “asset management fees” etc • Bill services in line with industry standards or current business practices • Clearly represent errors and mistakes

Reports & Reviews HOW TO STAY ORGANIZED • • Keep bound journal of all activities Document what was done at each visit to the property. Take and file lots of pictures Save all receipts/use separate credit cards for each project