Beware of the Receiver Bearing Gifts

A receiver is a court appointed official whose job is to take charge of assets and then deal with them responsibly through the sale of assets. Their job is to preserve the assets and they have the ability to do that. Just the appointment itself serves to prevent foreclosure and any transfer of the asset without court approval is void. The receivership acts like a bankruptcy proceeding in some ways. The positive side of the appointment is that it can preserve assets and serve to locate unidentifiable assets of judgment debtors. The negative aspect is that the cost of the receivership can spin out of control if the court does not step in and control the receiver.

Statutory Authority for Appointment

Under section 64.001 of the Texas Civil Practices and Remedies Code a court of competent jurisdiction may appoint a receiver (1) in an action by a vendor to vacate a fraudulent purchase of property; (2) in an action by a creditor to subject any property or fund to his claim; (3) in an action between partners or others jointly owning or interested in any property or fund; (4) in an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property; (5) for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights; (6) or in any other case in which a receiver may be appointed under the rules of equity. Tex. Civ. Prac. & Rem. Code Ann. § 64.001 (West)

Notice that under section 64.001(4) a mortgagee being the lienholder can request a receiver. There is no automatic right for the borrower to request a receiver in response to an in rem foreclose of a home equity loan under section 735 of Texas Rules of Civil Procedure or in response to the acceleration of loan secured by a residential mortgage. Imagine the savings to a borrower who wanted to admit default and ask that the property be placed under receivership and sold for the benefit of the lender and borrower? No need for a short sale or for the borrower to file for bankruptcy.

Other Statutory Authority for Appointment of Receivers

Judgment Creditors under section 31.002(a) of the Texas Civil Practices and Remedies Code are entitled to aid from a court to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that cannot readily be attached or levied on by ordinary legal process and is not exempt from attachment, execution, or seizure for the satisfaction of liabilities. Under section 31.002(b)(3) of the TCPRC the receiver can take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment. They cannot take possession of exempt property. A judgment debtor may sells real property and claim that the property is exempt and not subject to the receivership proceeding.

As a Remedy for Breach of Trust under section 114.008(a)(5) of the Texas Property Code, a court may appoint a receiver to take possession of the trust property and administer the trust. In re Estate of Hoskins, 2016 WL 4699193 (Tex. App. – Corpus Christi 2016, no pet. h.).

In a Divorce Proceeding under section 6.502 of the Texas Family Code, a court may appoint a receiver for the preservation of the property and protection of the parties as deemed necessary and equitable during the pendency of the divorce. There must be testimony that the appointment of a receiver is necessary for the preservation and protection of the property. Brawley v. Huddleston, 02-11-00358-CV, 2012 WL 6049013, at *3 (Tex. App.—Fort Worth Dec. 6, 2012, no pet.)(court found appointment of receiver was abuse of discretion since the parties did not want the property sold and the receiver was proceeding to sell the property because the court had not instructed otherwise); Ortiz v. Ortiz, 13-15-00556-CV, 2016 WL 6124642, at *1 (Tex. App.—Corpus Christi Oct. 20, 2016, no. pet. h.)(receiver appointed where party was transferring profits from companies for personal use and there was a failure to keep corporate and personal assets separate) A court will not disturb a trial court’s order appointing a receiver absent an abuse of discretion. Norem v. Norem, 105 S.W.3d 213, 216 (Tex. App.—Dallas 2003, no pet.).

Receiver’s Powers and Costs.

A receiver has the power to take possession of the property, receive rent, compromise demands and transfer property and can file suit without court approval.

For most cases a real estate agent could serve as a receiver and their fee can be fixed by their agreement. Some courts appoint attorneys as receivers and in some cases those fees have escalated out of control having no relationship to the results achieved. In such cases the creditors or affected parties should object to excessive fees. Some parties have moved the court to increase the bond of the receiver if the receiver is appearing to be acting outside the scope of his appointment. In the case of Phillippe Tanguy v. W., 01-14-00455-CV, 2016 WL 6277420 (Tex. App.—Houston [1st Dist.] Oct. 27, 2016, no. pet. h.) a party objected to the receivership as an unnecessary cost since the sheriff could have sold the property by sheriff’s sale without incurring an additional receivership fee. The court found the issue moot but it does show how a receivership can escalate the costs of the proceeding in a way that is not necessary when there is a specific identifiable asset already available and could already be sold by the sheriff without the need for a receivership.

A Receiver Generally Enjoys Judicial Immunity. Texas adopts a functional approach that focuses on whether the person seeking immunity is intimately associated with the judicial process and if that person exercises discretionary judgment comparable to that of the judge. Dallas County v. Halsey, 87 S.W.3d 552 (Tex. 2002); Delcourt v. Silverman, 919 S.W.2d 777, 782 (Tex. App.—Houston [14th Dist.] 1996, writ denied). An officer of a court who is entitled to the protection of derived judicial immunity receives the same immunity as a judge acting in his or her official judicial capacity—absolute immunity from liability for judicial acts performed within the scope of jurisdiction. Dallas County v. Halsey,87 S.W.3d 552, 554 (Tex.2002). Officers of the court who are integral parts of the judicial process, such as court clerks, law clerks, bailiffs, constables issuing writs, and court-appointed receivers and trustees are entitled to judicial immunity if they actually function as an arm of the court. Delcourt, 919 S.W.2d at 781 (emphasis added); see also Byrd v. Woodruff, 891 S.W.2d 689, 708 (Tex.App.—Dallas 1994, writ dism’d by agrm.)

Not All Act of a Receiver Entitle Them to Immunity. In Alpert v. Gerstner, 232 S.W.3d 117 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) the receiver was not entitled to derived judicial immunity for breach of fiduciary duties to beneficiaries.

Sales of Property During Receivership are Void. Sometimes property is sold by the judgment debtor without court approval. These sales are void. This is true even if the receiver has not filed a lis pendens in the county where the property is located. First S. Properties, Inc. v. Vallone, 533 S.W.2d 339 (Tex. 1976).

Equitable Subrogation Applies. Texas has long recognized a lienholder’s common law right to equitable subrogation in receivership cases as receivership does not destroy rights prior to the receivership. Tarver v Land Mortg. Bank, 7 Tex. Civ. App. 425, 27 S.W. 40 (Tex. App. – 1894). Equitable subrogation applies in a receivership if the debt is paid on the real property on compulsion to save itself from loss by reason of a superior lien and therefore was entitled to be reimbursed by the receiver.