Receiverships & Conservatorships 101 Understanding a Powerful Legal Tool

Between the tragedy of the Surfside condominium collapse in Florida and the subsequent placement of the association in receivership, as well as the flurry of recent press around popstar Britney Spears’s yearslong struggle against her own financial and legal conservatorship situation, many may be confused—or just curious—about what exactly those terms mean, and how both an entity like a condo association and a private individual can be in the same legal ballpark. While it’s rare for an entire multifamily community to be placed in receivership, conservatorships for individual residents are much more common—so it’s helpful for both boards and residents to have a basic understanding of both processes, how they come about, and how they may change with a given set of circumstances. 

Fundamentally, when a property or individual finds itself or themselves in a situation that threatens the continued economic viability of the asset or estate, our laws provide a level of supervised assistance from qualified third parties to help restore and preserve that viability. In the case of real property, that assistance is known as receivership. In the case of an individual, it is known as conservatorship or guardianship. In both cases, the goal is to stabilize and preserve the value of the real property and/or the personal estate.

Receivership

William D. McCracken, a partner with Manhattan-based law firm Ganfer Shore Leeds & Zauderer, defines receivership as follows: “A receiver, most broadly, is an officer of the court appointed to step into the shoes of an owner or other interested party. They are appointed for various reasons, but usually it’s when the current owner or steward of the property is putting the value of property at risk.” The receiver could be requested by a creditor, a group of tenant shareholders, or even an individual owner. They will petition the court to appoint a temporary receiver to put everything at the property on an even keel.

According to Jennifer Barnett, a partner with Marcus Errico Emmer & Brooks, a law firm located in Braintree, Massachusetts, “The appointment of a receiver is to preserve assets for all parties who have an interest in it.” She adds that it’s only used where it appears that in its absence, the property would be subject to damaging waste or loss.

When Is a Receivership Used?

Receivership is designed to rescue real property from irresponsible management—whether intentional or unintentional. “Somebody has to take control when you’re in a difficult situation,” says Scott Piekarsky, an attorney with Phillips Nizer, located in Hackensack, New Jersey. “When a property has no money—if funds were stolen, for instance—vendors can’t be paid, maybe there’s no manager, and no insurance coverage due to a lapsed policy because the premium wasn’t paid. A mechanism is necessary to stabilize the property for the health and safety of residents, and to rescue a situation. That’s when a receivership is necessary.”

“Sometimes a receivership can be used when dealing with a corrupt co-op board,” adds McCracken. “We have had occasions where the best solution is a receiver. For instance, a co-op board controlled by an entity who’s not looking out for co-op”—perhaps a sponsor or investor—“and there is no other alternative other than to seek a receiver. It’s a drastic remedy.”

“It’s appropriate when a property can’t be run effectively and something is needed to operate the building,” says Barnett. On a more micro level, she says, “I’ve seen it brought against unit owners with serious problems like hoarding, bedbugs, etc.” Barnett also recalls a situation in which a municipality brought action against an association over lack of elevator repairs. “The association said they didn’t have money to do repairs,” she says. “We got them to the table with a receivership to get the repairs done. It’s also used in instances where a property can’t operate because of dysfunction, or lack of formal organization.” Barnett also cites a small association in Dorchester, Massachusetts. “No bills were getting paid. The client had been paying invoices as they came in, so the court instituted a receivership.” 

Piekarsky recounts a case some years ago where an association filed for bankruptcy protection. He represented the management company. “Sometimes there are such problems that the court says we need to get things on track to straighten things out, so let’s bring in a receiver. In New Jersey this is known as a ‘special fiscal agent.’ We got the property on track in a year’s time, and then had new elections for a new board.”  

One important factor to keep in mind is that receivership is designed to be impartial—though its reputation may suggest otherwise. Receivers themselves are appointed by the court, and answer only to the court. They aren’t beholden to any other interested party which might seek to influence the process or outcome. That being said, however, receivers, like those who send properties into financial turmoil, are subject to human frailties. Many attorneys are reluctant to push for receivership out of fears that the receiver will be no more honest than the entity that caused the problem. Receivership fees can be high as well—so it’s not always a simple solution. 

Co-ops vs. Condos

If you are a shareholder in a co-op and the board isn’t protecting the value of the property, the appointment of a receiver may be an improvement over the current board. If a receiver does step in, they do so as a replacement for the board, at least temporarily. Once appointed, the receiver would make the decisions on whether to keep the managing agent, the corporation’s legal counsel, and so forth.  

In a condominium it’s harder. A condo board doesn’t control the real property where most of the control of a receivership is based, says McCracken. “To the best of my knowledge, for a condo a receiver only makes sense where there is a substantial block of unsold units—as in newly built or newly formed condominiums.”

The other question is: who are you appointing a receiver for? McCracken explains that a receiver might be appointed for an individual unit for instance, to make sure common charges are paid. But in a co-op, it’s conceptually easier to substitute a receiver for a managing agent to run the whole property.

Conservatorships

Conservatorship (or guardianship, as it’s also known in some states) is the appointment of someone to protect the interests and estate of an individual. “It’s usually for mental health situations,” says McCracken. In a co-op or condo context, it’s usually considered when an elderly or infirm person cannot take care of themselves. “We might seek a guardian to help them manage their affairs,” McCracken continues. “It’s a way to get family members involved, so [the struggling resident] doesn’t get kicked out on the street. You consent to guardianship in order to protect their interest. It is focused on a person instead of real property.”

Unlike something like power of attorney, conservatorship is more of an emergency situation, says Barnett. If someone becomes disabled, she explains, or an elderly person in a condo can’t properly care for themselves (or puts other residents at risk) and the family won’t intervene, a conservator may become necessary.

In New Jersey, Piekarsky points out, there is a difference between a conservatorship and a guardianship. “If one can no longer handle one’s affairs, it’s a guardianship—not a conservatorship. A conservator is by consent; you haven’t lost your mind yet. Once you’ve lost your mind, it’s a guardianship. There’s also something called a civil commitment, where someone can be put in a facility to care for them.” 

Different states have different terms for—and different thresholds for invoking—these powerful legal tools, so it goes without saying that no matter the scale of the situation, it’s vital to consult competent legal professionals licensed to practice in your area to help guide you through the options available in your specific case, and determine the best way forward.  

In the long run, the benefit of receiverships and conservatorship is that there is a court-appointed, highly qualified, licensed and insured person looking out for the best interest of a struggling association or individual, depending on the legal mechanism employed. They are fiduciaries, acting impartially on a court’s direction to fix a difficult situation and get a property or estate running smoothly again.

A J Sidransky is a staff writer/reporter for CooperatorNews, and the author of several published novels.

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