As their distressed asset portfo-lios get more cumbersome, lenders are forgoing the foreclosure process and asking courts to place those assets in default into receiverships. This maneuver relieves lenders of construction and warranty liability because their names are not on the title. Court-appointed receivers protect the value of the distressed asset by maintaining the property, keeping the utilities on, and, with greater frequency, preparing houses for sale.
Newport Beach, Calif.–based California Real Estate Receiverships has been assigned the assets of several banks, including nearly 1,100 lots and homes that Bank of America retrieved from WL Homes. But its founder, Taylor B. Grant, doesn’t see his company as competing with builders because “if we don’t sell these houses, someone else will.”
Q: How do you view your role?
A: I work for the judge, and our loyalty is to the court. A good receiver will get a broad order to control the task of completing houses, so it doesn’t have to go back to the bank and become a long-term liability. Our job is to deliver the house free and clear of liens or warranty obligations. But I’m often the messenger of bad news because no one is ever happy with what I get for a lot or a house.
Q: What’s the condition of houses placed into receivership?
A: Most production homes have very few construction defects. But if they’ve been sitting around for a while, the permits may have expired and they might require re-inspection. The first 30 days [into receivership] is triage, dealing with permits and HOAs. The second phase is “reverse due diligence” to uncover what the real status of the asset is.
Q: Why don’t more banks choose this route?
A: Receivers can be expensive, but 90 percent of that expense is for what would have been spent anyway in construction costs. [But completing construction] is a business decision: If it’s a single-family house that’s 75 percent complete, we’ll finish and sell it. If it’s 25 percent complete, or if it’s 4,000 square feet when the acceptable footprint is 2,000, we might decide to tear it down.
Learn more about markets featured in this article: Los Angeles, CA.
