Receivers need oversight
by Les Rodin
LOS ANGELES BUSINESS JOURNAL
July 10, 1995

     Your May 22 article entitled "Receiver Flap Leads Court to Take Over Property Management Firm" brings to light a number of distressing problems within the scope of receivership appointments in general. While the actual misconduct reported involved the misappropriation of funds by a property management company and its president while acting in the dual capacity of manager and receiver, the growing problems within the court-appointed receiver community must also be examined.

     The use of state court receivers has grown dramatically over the past several years, in large part as a result of the vast number of foreclosure actions stemming from a weakness in the Southern California economy. With increased need has come an increase in the individuals and companies offering receivership services. The selection process has now effectively reverted to the party that instituted the receivership action, and the courts are relying upon that plaintiff party to properly screen its selection.

     The selection of receivers by the plaintiff through the ex-parte process has created a highly competitive environment in the receivership community. Frequent users of this process, such as institutional lenders and large private lending companies, are now demanding reduced fees as the govern­ing requirement of choosing a receiver, rather than his qualifications, experience and reputation.

     It is the secured lender's interest in reducing cost overhead for receiverships that undermines the nature, integrity and sanctity of receiverships, and potentially contributes to the downfall of many proper­ty management companies in their efforts to be competitive. Qualified and competent receivers are more reluctant to accept appointments for receivership estates where the secured lender is attempting to prearrange ceilings or caps on the amount of compensation or fees to be paid to the receiver.

     Unlike their counterparts in the real estate, property management, accounting and legal fields, receivers are not licensed or overseen by any board or agency. There is no test, certification or license required to call oneself a receiver. This lack of objec­tive comparison accounts for the broad spectrum of experience, qualifications and integrity among practicing receivers.

     The Superior Court is already over­worked, and it is neither reasonable nor practical to expect or otherwise impose an additional burden upon it to supervise the private-sector receivership business. Rather, it would seem that this is a matter which should be subject to the self-governing requirements of the business arena. What may also be needed is either an industry wide governing body or an agency created to control the qualifications and integrity of all state court receivers.

     A heavy dose of renewed credibility is in order in the receivership business; otherwise, how do we overcome the dilemma and the proverbial adage of "Who's watch­ing the fox in the chicken coop?"