Today, a Herrick condominium client received an Appellate Court ruling which acknowledges that under appropriate circumstances, an association may be entitled to a receivership in its foreclosure. This opinion constitutes the only known New Jersey Appellate Court opinion on an association's right to place an abandoned or tenant-occupied unit into receivership.
For many years, a Herrick client, Woodlake @ King's Grant Condominium, suffered the consequences of two delinquent and abandoned units. Combined, the units owed more than $35,000.00 to the association.
Both units are encumbered by mortgages with principal balances that exceed their market values. One unit's lender filed its foreclosure in 2009. The other unit's lender filed its foreclosure in 2010. By the fall of 2013, neither lender had completed either foreclosure.
Facing this situation, Woodlake filed its own foreclosure and filed motions seeking to place both units into receivership. Ruling that New Jersey's Condominium Act (the "Act") did not authorize a receivership for a condominium, the Superior Court's Chancery Court in Burlington County denied both motions. The Chancery Court also ruled that a receivership was not – even if there was authority in the Act for a receivership – "appropriate" in these two particular instances. Woodlake thereafter asked the Appellate Court to reverse that outcome.
Showing the importance of associations' continued struggle with delinquent, abandoned and tenant-occupied units, the Appellate Court agreed with Woodlake and refused to prohibit an association's ability and right to place abandoned or tenant-occupied units into receivership.
Instead, the court reiterated our general understanding (and the assertion associations should make as a matter of course when seeking to put a unit into receivership) that the "appointment of any receiver is an extraordinary remedy and involves the delicate exercise of judicial discretion." In fact, the court expressly stated that an association has the "...right to seek appointment of rent receiver under appropriate circumstances..." Though ruling that Burlington County's Chancery Court did not "abuse its discretion" in denying Woodlake's rent receiver motion, the Appellate Court stated that, "[a]ssuming arguendo that a condominium association has the right to seek appointment of a rent receiver under appropriate circumstances..."
In sum, the Appellate Court refused to accept the Chancery Court's hard and fast ruling that the Act did not allow for receiverships in condominium lien foreclosures. Instead, the Court noted that such a receivership may be permissible.
This opinion constitutes the only known Appellate Court opinion as to an association's right to place an abandoned or tenant-occupied unit into receivership. It acknowledges that an association may be entitled to a receivership in "appropriate circumstances."
Associations must keep in mind however that this decision is not 'reported' and hence not necessarily binding on all judges. Further, the association in this instance was still denied a receivership (though by the time that Woodlake received this appellate decision, both units' lenders had completed their foreclosures and taken ownership via a sheriff's sale, thereby precluding any receivership, even had there been a reversal). All of this, together with the reluctance of some chancery judges (depending on the county) to place units into receivership, should lead associations to continue to seek out and employ creative solutions for delinquent, abandoned and tenant-occupied units. Those creative solutions include a variety of ways associations can secure rental rights via its own sheriff's sale. They also include non-judicial (and via more limited legal work) ways to secure the right to rent the relevant units and generate revenue from them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.