Stressful financial times can lead businesses to default on their loans. The lender, often times a bank, will begin the foreclosure process on that loan. Under better circumstances, business owners can remain on the property continue operations until the foreclosure is finished. When businesses fail to preserve their lender’s secured interest for the loan, care for the property or abide by loan documents, lenders can take further action in court.
Lenders often include contract provisions stating that they can collect rent from tenants should default occur. When lenders go to court, they can request a receiver be assigned to the particular business to collect the rent. That way, lenders don’t have to worry about tenants pocketing money.
Receivers also hold business owners accountable for maintaining the property. They oversee maintenance requests, keep the property attractive to new tenants, and leading the leasing process. Sometimes, receivers can be in charge of selling the property before the foreclosure process is over.
Judicial vs. non-judicial process
Receivers generally apply to judicial foreclosures. In a judicial foreclosure, a lender files a complaint with the court, who then approves the foreclosure. Lenders can seek judicial foreclosures but are not required to in every case. This type of foreclosure often lasts longer than a non-judicial process.
In non-judicial foreclosures, lenders do not need to seek a court’s approval, but they still have to follow procedures outlined under state law. The non-judicial process is more likely to result in deficiency judgments against the business. Both processes can be time consuming and stressful, but businesses can ease stress by knowing the right tools available to them.