Appellate Division is Favorable, but Stops Short of Permitting Condominium Association’s Appointment of Rent Receiver During Foreclosure Proceedings

The April 13, 2017, decision of the appellate division in Mill Pointe Condominium Association v. Rizvi, sought to address a condominium association’s efforts to obtain rental income, during the pendency of a foreclosure lawsuit involving an empty condominium unit. By way of background, the association had obtained a judgment against the unit owner who had failed to pay both his residential loan mortgage payments and common expense assessments, and then filed a motion before the Law Division seeking the appointment of a rent receiver, during the pendency of the mortgage lender’s foreclosure lawsuit. The association’s proposed remedy would apply the rent payments to the outstanding judgment in its favor leading up to the foreclosure. The Law Division judge denied the association’s motion, which was opposed by the mortgage lender on the basis that the commencement of a leasehold with a third-party tenant would interfere with the completion of the foreclosure suit, and that it would force the lender to become a landlord. Unfortunately, the Appellate Division was unable to rule on this issue, which became moot because the foreclosure judgment was granted before the court could address the issues. It’s important to note, however, that the court found that the association had “raised interesting and novel legal issues that could have widespread importance.” The court went so far as to recommend that future appellants file a motion to accelerate the appeal, advising the court of the time factors involved.

While the guidance from the Appellate Division in Mill Pointe Condominium Association is certainly no guaranty that another appellate panel will favorably view an association’s request for the appointment of a rent receiver in order to obtain rental income from an otherwise vacant condominium unit, it certainly presents an indication that the court is interested in investigating the possibility of a remedy for similarly situated associations facing lengthy foreclosures.

There are positive and negative considerations involved in the appointment of a rent receiver, even without the potential for contested litigation with a mortgage lender, as was the case in Mill Pointe. Generally speaking, the appointment of a rent receiver by a condominium association is more typical in the context of a foreclosure action commenced on the association’s behalf. On the positive side, rent receivers are able to collect income and apply it to monthly assessments, fees, and arrears owed on a condominium unit as set forth in the order of appointment, and they have a responsibility to avoid waste and disrepair. On the negative side, rent receivers are court-appointed professionals who are answerable only to the court, and do not take direction from the association, once appointed. Furthermore, a rent receiver is only permitted to remain in place for a limited amount of time, from the date of appointment, to the conclusion of the foreclosure case. In order to gain the most benefit, smart associations will consider moving for the appointment of a rent receiver in conjunction with initiating foreclosure proceedings.