Michigan Enacts Uniform Commercial Real Estate Receivership Act

After decades of uncertainty and a general lack of clarity, the process of appointing a receiver, and a receiver’s role and powers have been given a more concrete statutory framework with the enactment of its version of the Uniform Commercial Real Estate Receivership Act (“Act”). The Act was signed by Governor Snyder on February 6, 2018 and went into effect on May 7, 2018.

A receivership is an equitable remedy which allows the court to oversee the orderly management and disposition of property subject to a lawsuit. A receiver is an officer of the court that appoints him or her to take possession, custody, and control of specified real estate and/or personal property and to dispose of that property through its sale, abandonment, or other means. See, e.g., Fidelity Trust Co v Saginaw Hotels Co, 259 Mich 254, 242 NW 906 (1932); Cohen v Cohen, 125 Mich App 206, 335 NW2d 661 (1983).

The concept of a receivership is far from new. Yet, as previously stated, a standard set of receivership rules has been lacking, not only in Michigan, but across the country. In response to this lack of standards, the Universal Law Commission (“ULC”) drafted its model Uniform Commercial Real Estate Receivership Act. The ULC suggested that state adoption of its model act will provide for greater predictability for litigants, lenders, and other parties doing business with a company or agreement subject to receivership. By signing the Act into law, Michigan has added itself to the increasing number of states that legislatively authorize receivership sales.

Some of the highlights of the law include:

  • An expanded number of specific and objective grounds for the appointment of receivers over commercial real estate;
  • Provisions which set forth the duties of an owner of a receivership property;
  • Clear definitions of the authority of receivers, including being able to:
    • Obtain the status of lien creditor as to both real and personal property; and Adopt or reject any executory contract of the mortgagor relating to the property, with court approval;
    • Incur secured debt and pay expenses in the ordinary course of business;
    • Assert a claim, right, or cause of action that relates to receivership property; and
    • Improve to the receivership property.

The overall benefit of the Act is it represents a codification of many of the legal principles that have been adopted by the common law concerning receiverships in Michigan.

However, while the Act should provide a more predictable and understandable framework, it is important to remember it does not give automatic effect to a receivership clause included in an agreement. While a receivership consent clause may be persuasive to a judge, it is not dispositive since the Act notes that a court may appoint a receiver.

The Act will only apply to a receiver appointed by the circuit court subsequent to the effective date of May 7, 2018.
If you have any questions concerning this Act, or if you have questions about receivership issues in general, please do not hesitate to contact our office.

A full copy of the statute can be accessed here.

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