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Mar 2018
12
March 12, 2018

Commercial Real Estate Receiverships Gain Clarity

Historically, receiverships in Michigan have been fraught with unpredictability and uncertainty from beginning to end. Despite years of common law, which offered some guidance in this area, there has never been specific statutory guidelines (with the exception of the construction lien act) which clearly addressed the appointment, powers and authority of a receiver. For example, while courts certainly could appoint a receiver in exercise of their equitable powers, some courts were less willing than others to grant such requests given the lack of clarity as to when a receivership should be granted. Further, it has always been unclear whether a receiver could sell real property that was part of the receivership estate. If such a sale was allowed, it was unclear whether it could be made free and clear of liens and free of the owner’s statutory redemption rights.
 
On February 6, 2018, the Uniform Commercial Real Estate Receivership Act (“Act”) was signed into Michigan law. The Act, which takes effect on May 7, 2018, does away with the uncertainty and plainly establishes the circumstances under which a court may appoint a receiver and also enumerates clearly the powers and authority of a receiver with respect to commercial real property. One of the highlights under the Act is that a receiver may now, with court approval, clearly sell commercial real estate completely free and clear of any junior liens. Any such liens, which are extinguished by such a transfer, attach to the proceeds of the transfer and retain the same validity, perfection and priority that the lien had on the property even if the proceeds are not enough to satisfy all obligations secured by the lien. Further, such transfers under the Act would be made free and clear of any statutory redemption rights of the property owner.
 
Other key highlights include the following:
 
  1. Sales may be either public or private;
  2. A creditor with a valid lien may purchase the property and offset against the purchase price part or all of its lien, provided the creditor pays off any senior liens which were extinguished by the transfer; and
  3. Any good faith purchaser of such property would not be adversely affected should any order granting the sale be modified or overturned.
 
Thus, the Act codifies many of the principles established in the common law over the years. Most importantly, the Act provides guidance and clarity to courts, lenders and valid lien holders, and lends predictability to the process.
 
Attorney Ralph Colasuonno regularly assists commercial lenders in obtaining court appointed receivers and routinely acts as counsel for court appointed receivers in both state and federal courts. For more information, please feel to contact Ralph or any other member of the Real Estate Litigation Practice Group at Warner Norcross + Judd.

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