Through the combined efforts of public agencies and non-profit developers, vacant property receivership can help restore deteriorated
REO properties to a habitable condition and return them to productive use. In communities that allow receivership for vacant properties, a governmental or non-profit entity can petition the court to appoint a responsible party, often known as a receiver or entity in possession, to
rehabilitate or occasionally demolish a property on behalf of the owner. The process of petitioning for receivership begins with a public nuisance lawsuit in which the court orders the property owner to resolve specific problems that are creating a public nuisance. If the owner does not comply, then an organization with the capacity to resolve the problems can petition for receivership. For example, if a lender or servicer is not addressing code violations despite a court order, a community organization could petition the court to appoint a receiver to ensure that the property is adequately maintained. Even without using receivership, having it available can help courts persuade owners to resolve the violations themselves.
The receiver can obtain a lien on the property for expenses related to carrying out the court-approved rehabilitation plan. The lien often takes priority over all other liens except municipal liens. A lien may also be used to borrow money for rehabilitation expenses. If the property owner does not repay the receiver for their expenses, the receiver can foreclose on the lien and gain control of the property.
For vacant property receivership to be effective, the receiver needs to have a secure funding source and an exit plan. In strong markets, the expected post-rehabilitation property value and the receiver’s ability to get a lien on the property may allow the receiver to secure private financing. In weak markets, however, the costs of rehabilitation or even demolition are often higher than the improved value of the property. Communities can help receivers restore properties by allocating some of their CDBG money to provide low- or no-interest loans for receivership expenses.
Solutions in Action
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Orders of Possession in New Jersey
In 2004, New Jersey authorized "orders of possession" (another term for vacant property receivership) in the Abandoned Property Rehabilitation Act. If neither the property owner nor other lien holders submit a realistic plan to quickly rehabilitate the property, the court can appoint an "entity in possession" to expedite rehabilitation. Repairs can be funded through loans or state grants, and the value of any loan becomes a lien on the property. If the owner does not regain possession of the property, the court can order the sale of the property at fair market value with the proceeds going toward the various liens on the property and providing a development fee to the entity in possession; any remaining proceeds go to the owner. The purchaser of a rehabilitated property can obtain it with a clear, marketable title.
Using NSP for Receivership in Massachusetts
Massachusetts allocated some of its Neighborhood Stabilization Program (NSP) money to support a receivership program for communities struggling with distressed foreclosed properties. The program started as a pilot project in the cities of New Bedford, Springfield, and Worcester, and was later expanded to dozens of additional cities across the state. The NSP funding was used by the Massachusetts Housing Partnership and the Attorney General's Office to provide training for receivers and help them identify loan sources.
In Springfield, Massachusetts, receivership was used to restore occupied multifamily properties with long histories of code violations. CDBG money helped to provide low-cost loans for the receivers.
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