A Receivership Bond is created when a company, but more commonly a piece of real estate, is in dispute. For example, a dispute could occur between the bank and a real estate owner if the bank is not receiving mortgage payments. If the property has tenants, these individuals would need to be protected in the event of a property seizure. In this case, the court determines that a Receiver of Rents needs to be appointed.
Receiver of Rents
The Receiver of Rents, typically an attorney, collects the rents and manages the property pending the outcome of the litigation. Once the Receiver is appointed, there’s a condition that they obtain a bond, which is generally for 18 months of the current rent rule. This means that if the property is collecting $5,000 a month in rent, the bond would be for approximately $90,000. The Receiver must also pay an annual bond premium, which is generally 1% of the bond amount.
The Surety examines three (3) areas: 1. the attorney’s credit, 2. if they have experience as a real estate lawyer, and 3. if they’ve had any experience in managing a property or collecting rent. Once the Surety is satisfied with the attorney’s credit, they execute an oath of receivership and file that oath and the receivership bond with the court. They sign the first page of the bond and they have the signature notarized on the second.
Insurance and Liability
The Receiver is an extension of the court. For this reason, we generally suggest that the Receiver adds themselves to the building’s insurance policy, as they could be held liable if the building was damaged or had a fire since they were managing the building. Along with this, the Receiver should also ensure that any insurance certificates are up to date.
Receivership Bonds for Businesses
In terms of Receivership Bonds for businesses, these happen when an attorney is appointed to collect the assets of a business and receive the funds, such as in the case of a large divorce. In this case, the Receiver more or less operates as a quasi-court appointed CFO: They collect the funds, pay expenses, and track revenue. Bond amounts in this type of situation are determined by the judge.
If you find yourself in a situation where a Receivership Bond is required, contact us today 212-227-7277.
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