What is a Receivership?
A receivership is an equitable and legal remedy that may be used to acquire possession of property by a court-appointed party known as a receiver. A receiver’s powers are derived directly from the appointing court. The receiver is a disinterested party who represents and protects the interests of all other persons in the receivership property.
A court-appointed receiver is an extremely harsh remedy that allows the court to take possession and control of private property and place it in the hands of a court-appointed officer, the receiver. A court should only appoint a receiver if there are no other, less harsh remedies available. However, we have noticed that some judges like to throw receiverships around like they’re confetti.
If you’ve had a receiver appointed over your property, you need to act quickly, as the time to file an appeal is shorter than usual. Our Dallas/Fort Worth/Plano Attorneys bring a rare skill set to the table when it comes to receiverships. We have handled some of the most complex receivership cases in the state, so we are well-versed in the law. Contact us today, as the clock starts ticking the moment the judge signs the order.
Grounds for Appointing a Receiver
A receivership in Texas may be established under rules of equity (“fairness”) or pursuant to a specific statute. Under equity, a receivership must be “ancillary” to an otherwise apparently valid claim or remedy and is intended to protect or preserve property during the pendency of a lawsuit. When the receivership arises out of a statute, it doesn’t matter if ancillary claims exist. The basis for appointing a receiver is different depending on which statute a receiver is requested under.
Types of Receiverships
In Texas, there are various statutes that allow a receiver to be appointed:
- Texas Civil Practice & Remedies Code Sec. 31.002: After a judgment is awarded against a party to a lawsuit, a court may appoint a receiver to take possession of the judgment debtor’s nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment. This is known as a post-judgment receivership. This type of appointment is governed by Chapter 64.
- Texas Civil Practice & Remedies Code Chap. 64: A court may appoint a receiver in several circumstances, including:
- In actions by a vendor to vacate a fraudulent purchase of property; by creditors to subject any property or fund to their claim; between partners or others jointly owning or interested in any property or fund, as long as the party appointing a receiver has a probable interest in or right to the property or fund, and the property or fund is in danger of being lost, removed, or materially injured.
- In an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property, but only if the mortgaged property is in danger of being lost, removed, or materially injured, or the condition of the mortgage has not been performed and the property is probably insufficient to discharge the mortgage debt.
- For a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights.
- In any other case in which a receiver may be appointed under the rules of equity.
- In a family or probate court, a receiver may be appointed over the estate of a missing person if it appears that the estate of the missing person is in danger of injury, loss, or waste, and the estate of the missing person is in need of a representative.
Under these statutes, a “receiver should be appointed only in those situations where the property involved is in present danger of being lost, removed, or materially injured and should never be ordered if another remedy, less harsh, is available which will afford the needed protection.” Parness v. Parness, 560 S.W.2d 181, 182 (Tex. Civ. App.—Dallas 1977, no writ). A party requesting a receivership must show evidence that the appointment was necessary for the preservation and protection of the property. Readhimer v. Readhimer, 728 S.W.2d 872, 873 (Tex. App.—Houston [1st Dist.] 1987).
- Texas Business Organizations Code Sec. 11.402: Any court that has subject matter jurisdiction over specific property of a Texas or foreign entity located in Texas and involved in litigation has jurisdiction to appoint a receiver for that property to rehabilitate a Texas entity, to liquidate a Texas entity, or if the court determines that circumstances exist requiring such appointment.
Texas Family Code Sec. 6.502: While a divorce case is pending, the court may appoint a receiver for the preservation and protection of the property of the parties. Under the Texas Family Code, a party must show evidence that the receivership is for the protection and preservation of the marital estate. Norem v. Norem, 105 S.W.3d 213, 216 (Tex. App.-Dallas 2003, no pet.); Heller v. Heller, No. 05-91-01598-CV (Tex. App. Dec. 29, 1992).
A receiver is improperly appointed over a marital estate if a party testifies that he’s struggling to keep up with the mortgage without providing evidence that the payments are delinquent or that foreclosure is imminent, or seeks the appointment due to dissatisfaction with the sale of the home.
Qualifications to Serve as Receiver
- a party to the action;
- an attorney representing a party to the action;
- any other person with an interest in the subject matter of the action or the result of such action;
- any person with a financial stake in the receivership.
Powers of a Receiver
A receiver must, at all times, be subject to the trial court’s authority and orders. The trial court cannot confer the exercise of non-delegable judicial discretion and power to the receiver. This means that, although the receiver is an officer of the trial court, all decisions surrounding the property must be approved by the judge.
What Red Flags Should I Look For In The Order Appointing a Receiver?
At Carpenter & Associates PC, we’ve noticed that receivers are often granted too much power. Receiverships are rare depending on the type of case, so judges may not be as familiar with the law as you’d hope. You need to contact one of our DFW Receivership Defense Attorneys if your order:
- does not require the receiver to post a bond
- sets the receiver’s fee prior to their discharge (typically listed as a percentage)
- allows the receiver to take possession of exempt property
- states, “An Order from the Receiver, made pursuant to this Order, is equivalent to an Order from this Court.”
- states that the receiver may schedule hearings and meetings and direct parties and witnesses to give testimony
- grants the receiver the authority to rule upon the admissibility of evidence
- grants the receiver the power to place witnesses under oath
- authorizes the receiver to seize, monitor, close, or lease email addresses
- gives the receiver the ability to pay themselves without further order of the court
- orders third parties (spouses, ex-spouses, brothers, sisters, children, step-children, parents, etc.) to comply with the order
- allows the receiver to take possession of all mail, unopened, as it is received
- authorizes the receiver to direct any sheriff or constable to seize and sell property under a writ of execution”
Our Plano, Texas Lawyers are here to help you set aside or appeal your receivership. Contact us today to get started. (972) 455-8700.