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Stonebridge Bank v. Nita Properties, LLC

2011 WL 2173771 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

FORECLOSURE; RECEIVERS — Under federal law, a court may, in its discretion, appoint a receiver pendent lite if the party seeking appointment of the receiver has a legally recognized right in the property, there are compelling circumstances, and no less dramatic remedy can be fashioned.

Under the Federal Rules of Civil Procedure, “a court may, in its discretion, appoint a receiver pendent lite.” This being an extraordinary remedy, “the party seeking it ‘must show that he or she has some legally recognized right in [the] property that amounts to more than a mere claim against [the] defendant.’” Secured creditors have such a legal interest in the property. Nonetheless, courts have been admonished not to appoint a receiver unless there are “compelling circumstances” and “no less dramatic remedy can be fashioned.” Receiverships are appropriate only when the “equitable interest in the property to be seized ... cannot otherwise be satisfied.” Courts frequently only find it appropriate to appoint a receiver when there is a demonstrated that there will be “imminent danger of property being lost, injured, diminished in value or squandered, and where [other] legal remedies are inadequate.”

Here, the property owner borrowed money and secured the loan with a mortgage on the property. The borrower then defaulted on the loan and the lender, pursuant to the mortgage, sought to have a receiver appointed. It did not give the lender the right to get an accounting. Under the circumstances, the Court appointed a receiver for the property. Clearly, the lender, as a secured creditor, had a legal interest in the property and the expressed provisions of the mortgage gave the lender the right to have a receiver appointed. As to this point, the Court noted that such a provision in a mortgage is not dispositive, but when a property owner consents to a receivership, it weighs “heavily” in favor of such an appointment. The Court did not set a high threshold when deciding that the lender’s equitable interest was in “imminent danger of ... being lost,” as evidenced by its pointing merely to the failure of the borrower to suggest it had the financial resources necessary to pay the mortgage, pay real estate taxes, and pay maintenance costs. Lastly, the lender was able to show that it had no adequate legal remedy because it was not receiving any payments and might be forced to pay the real estate taxes. As a result, a foreclosure action would “not compensate [the lender] for all of the potential income, profits, and revenues squandered by [its borrower’s] failure to administer and maintain the property.

On a contrary note, the Court would not order an equitable accounting because it held that the borrower and the lender did not have a fiduciary relationship. Rather, the Court characterized the relationship as one between a traditional creditor and a traditional debtor. To the Court, this was an arms-length transaction. Second, there was no evidence of any misrepresentation or fraudulent conduct on the part of the borrower. Lastly, the accounts did not appear to be complicated in nature or difficult to understand. For all of those reasons, and after applying Pennsylvania law, the request for an accounting was denied.

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