Receivership as an Enforcement Mechanism

It is hardly uncommon that lenders, in some transactions, require a borrower to sign a promissory note or some other agreement to establish the terms under which a loan must be repaid and the consequences if the required amount is not repaid consistently with such terms. Nor is it unusual for lenders to demand that they receive a security interest in property owned by the borrower so, if that party to the transaction defaults on the agreement, the lender has suitable collateral to recoup, at least some of its losses. Some loan agreements even apply the remedy of receivership against a company which defaults on a note or other instrument.

In New Mexico, a district court can order a receivership, pursuant to §44-8-1 et seq. (1978), which provides:

            Upon application to a district court, the district court shall appoint a receiver in an action by a mortgagee or secured party or in any other action based upon a contract or other written agreement, where such mortgage, security agreement, contract or other written agreement provides for the appointment of a receiver.

A recent decision by such court in BRE-1, Inc. v. Conquest Santa Fe, LLC,  Case No.12-cv-00260 MV/KBM. (US Dist Ct. D. N.M. 2014) demonstrates how this enforcement remedy operates. In this case, a mortgage company which was the successor-in-interest to the original note holder sued on a promissory note dated October 10, 2008 with an original principal amount of $9,585,824.00 because the Maker – the borrower – of the Note defaulted on its terms after the Note matured on April 10, 2010. The Holder of  this instrument also possessed a Deed of Trust which identified certain property in Santa Fe known as the Hyatt Place Hotel as collateral. In addition, this deed provided that the deed (and Note) holder had” the right to have a receiver appointed to take possession of all or any part of the Property, with the power to protect and preserve the Property, to operate the Property preceding foreclosure or sale, and to collect the Rents from the Property and apply the proceeds, over and above the cost of the receivership, against the Indebtedness.”

The District Court in this case did order appointment of a receiver and gave the applying party control of all of the property referred to in the Deed and ordered that all funds in the bank account of the defaulting company be transferred to the control of the Deed holder. The Court’s Order specifies with particularity the powers of the appointed receiver, how the receiver may administer the property and what written reports must be filed, on a monthly basis concerning the financial condition of the company in receivership as well as the actions taken under the receiver’s authority. The breadth and scope of the powers granted to the receiver prospectively operating this hotel underscore the somewhat drastic nature of this remedy. 

In Albuquerque, Giddens & Gatton Law, PC has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases as well as receiverships and other remedies available to creditors. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.