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Paddingston Square at Mahwah Condominium Association, Inc. v. Sanzari

F-0006464-10 (N.J. Super. Ch. Div. 2010) (Unpublished)

LIENS; RECEIVERS — Unlike in the case of a mortgage, a court will not appoint a rent receiver merely to enforce a contractual provision between the parties and where a lien, such as a condominium lien, is not a mortgage lien, a court has the discretion to appoint a receiver, but can only do so if certain tests are met and the appointment is necessary to maintain the equity in the property.

A condominium association had a lien on a condominium unit for unpaid assessments. It sought to have a rent receiver appointed during the pendency of its foreclosure action. There is case law dealing with a court’s authority to appoint a rent receiver in a mortgage foreclosure action. Essentially, a court has discretion to do so, but such discretion “should be exercised when it appears necessary for the protection of the mortgagee.” Long standing case law holds that “the appointment of a rent receiver [is] not an abuse of discretion where (1) the mortgage contain[s] an express provision for the assignment of rents and consent to the appointment of a receiver upon default; (2) real estate taxes [are] in arrears; (3) there [is] a failure to insure the mortgaged premises against loss or damage by fire; and (4) there [is] a default in the payment of interest.” Unlike in the case of a mortgage, “[a] court will not appoint a rent receiver merely to enforce a contractual provision between the parties.” In the absence of an express provision or where it would be contrary to public policy, a court may appoint a rent receiver, but generally “will place the primary reliance upon the inadequacy of the mortgaged security when compared to the outstanding amount due on the mortgage.” Nonetheless, a party seeking the appointment of a rent receiver “should also allege (1) the inability of the mortgagor to pay the debt; (2) the misappropriation of rents by the owner by failing to pay taxes, insurance, water rents, or interest on prior mortgages; [and] (3) the failure to make necessary repairs, resulting in deterioration of the property and declining property values. Where some or all of these additional grounds appear, the court may appoint a receiver on the premise of maintaining the equity in the property.”

Here, the Court needed to analogize the position of the condominium association holding the assessment lien to the position of a mortgagee. In this case, it accepted the factual allegations of the association, especially that the mortgage liens exceeded the fair market value of the property and that there might be no equity in the premises available for the association to collect upon the outstanding debt. Nonetheless, the Court looked at those factors and then denied the application for a rent receiver. It pointed to the lack of any express authority in the condominium’s organic documents. Also, there was no rent currently being paid and therefore there were no rents available for collection. There was no showing that the unit owner had ever misappropriated rents. In fact, there was no affirmative obligation imposed on the unit owner to rent the premises to a third party. In addition, the mortgage was in default and it constituted a prior lien to the debt owed to the association. To the Court, this meant that the mortgage lender and the holders of any of the liens claiming priority over that of the association should have had an opportunity to be heard with respect to the pending application. Accordingly, the Court denied the condominium’s application for a rent receiver.

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