When a condo association files a foreclosure lawsuit, it is entitled to ask the court to appoint a “custodial receiver” who takes over the property, rents it out, and pays the proceeds consistent with guidelines in the Condominium Act (RCW 64.34.364(10)). As a practical matter, once appointed, the receiver rekeys the unit (assuming it is vacant), evaluates the work needed to make it rentable, and provides a “punch list” to the board, along with the estimated costs of the necessary work. The board has to decide if the investment required is “worth it,” and this analysis is very fact-specific – in other words, we can’t give you a formula here to help you make this decision! As always, we encourage boards to consult with their association’s attorney in making such a decision.
Once the board approves the work, either the receiver OR the board’s vendors (this is mostly up to the board, sometimes we can save money by using different vendors than the receiver might choose) will complete the work. The receiver then markets the unit and rents it out. Receivers are generally familiar with associations that have rules regarding the administration of a rental unit, and they do background/credit checks, provide the governing documents to the tenants, etc.
Under Washington law, the proceeds of a custodial receivership have to be applied in this order:
- First to the costs of receivership and attorneys’ fees connected to the receivership.
- Then to the cost of refurbishing unit.
- Then to “applicable charges” (including, ongoing dues, any utility charges, etc.).
- Then to costs, fees, and charges of the foreclosure lawsuit.
- Then to payment of delinquent assessments.
Receivership can be an effective way to pay down a delinquency or, at the very least, “stop the bleeding” on a delinquent unit. Anytime you are dealing with a unit that is not owner-occupied, your attorney should take you through the analysis of whether a receivership is a viable option to assist in recovery of the balance due. In the last several years, we have seen the majority of receiverships produce a good result for our clients. If this is an option you are unfamiliar with, be sure to ask your attorney for more information.
If you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!