The Atlanta Title Company
Residential and Commercial Real Estate Lawyers
945 East Paces Ferry Rd, Resurgens Plaza, Atlanta, GA 30326

Title Acquired Through a Court-Appointed Receiver

Introductory comment: The election by lenders and special servicers to work out defaulted loans through the use of a court-appointed receiver to manage, operate, market, and ultimately sell mortgaged real property gained popularity during the recent economic downturn. This chapter is applicable only to those situations in which title to property of a defaulting borrower has been conveyed pursuant to a court ordered receiver’s sale. An examiner shall report whenever there appears in the chain of title a deed executed by a court-appointed receiver. The examiner shall review the executed and filed Final Order coming out of said case and may rely upon the recitals in said Order without further inquiry. Unless specifically engaged to do so, the certification of the examiner as to the title having been conveyed in reliance on such an order shall not serve as an opinion as to the sufficiency of the action to determine title as to all potential parties. 101

Comment: It is clear under Georgia law that a court can appoint a receiver to take possession of and manage a property in order to protect the rights of an interested party. (O.C.G.A. Sections 9-8-1 and 9-8-2). It is also clear that the trial court has wide discretion in appointing a receiver and that this discretion will not be disturbed absent manifest abuse. W arner v. W arner, 237 Ga. 462 (1976). W hat is less clear is whether the receiver actually has the authority to sell the property given that no such explicit statutory or case law authority exists. The existence of such authority can arguably be inferred from the latitude that our courts have given to receivers in carrying out their fiduciary obligations, as well as the language of O.C.G.A. Section 9-8-6: “Unless otherwise provided in the order, liens upon the property held by any parties to the record shall be dissolved by the receiver’s sale and transferred to the funds arising from the sale of the property.” However, given this lack of clarity, an examiner engaged to do so must take caution in reviewing the case file before further certifying as to the status of title. Factors to be considered include: 1) Has the borrower consented to the appointment of the receiver and the sale of the property?; 2) If not, does the order appointing the receiver: a) provide that the borrower and all other defendants have been properly served; b) provide that the borrower is in default under its obligations to the lender; c) establish that the receiver is not related to the plaintiff by blood, marriage, or any employment or ownership interest; d) give the receiver the authority to investigate and evaluate whether the best interest of the parties are served through either a public or private sale; e) if the receiver determines that the best interest of the parties will be served by a private sale, give the receiver the authority to market the property and negotiate and execute a contract to sell the property; and f) contain an adequate description of the property that is the subject of the receivership?; 3) Given the requirement of O.C.G.A. Section 23-4-35 that sales under a decree in equity are subject to confirmation by the judge, has such a confirmation order been entered and does it provide: a) that the borrower and all defendants have received notice of the motion; b) that the property was marketed in a commercially reasonable manner; c) that the sale is to be made pursuant to a specific contract with all material terms of sale included; d) that a sale pursuant to such contract is in the best interest of the parties and will realize more than a public sale; e) that the receiver is authorized to execute and deliver a deed on behalf of the borrower in accordance with such contract; f) whether the sale is to be free and clear of any other liens and if so, have the lien holders been made a party to the action pursuant to O.C.G.A. Section 9-8-6; and g) specifically direct the manner in which the sales proceeds are to be applied?; and 4) Have all appeal periods as to both of the above referenced orders expired with no appeals having been filed? Given the potential pitfalls that exist with these transactions, the examiner and/or closing attorney should recommend that the client obtain title insurance, and if either are the issuing agent, the policy should be issued only after consultation with the underwriter.