With the financial crisis still in mind and the potential “wall of maturities” perpetually on the horizon, the Nevada Legislature has enacted two bills addressing commercial real property foreclosure and commercial real property receiverships.

Turning first to commercial foreclosures, the Nevada Legislature previously enacted legislation requiring foreclosing lenders to provide an affidavit of authority indicating that the beneficiary under a Deed of Trust—or the foreclosing trustee—was in actual or constructive possession of the Note secured by the deed of Trust and that the beneficiary or foreclosing trustee was authorized to enforce the loan. Other information, such as the principal amount owed and the amount of interest and other fees, had to be provided in the affidavit. Previous legislation imposed these requirements on both commercial and residential lenders.

Through Nevada Senate Bill 490, the Nevada Legislature has removed the affidavit of authority requirements for commercial loans by making the affidavit of authority requirements specific to residential loans. This change could result in a less burdensome commercial foreclosure process, especially for CMBS lenders who had to comply with a process that was designed to address residential loan foreclosure. These amendments will be codified within NRS 107.080 and became effective June 12, 2017.

In addition, via Assembly Bill 235, Nevada becomes one of two states to have enacted the Uniform Commercial Real Estate Receivership Act (the Act), which becomes effective October 1, 2017. Before this legislation, a receiver could be appointed over commercial real property in certain circumstances involving an assignment of rents (NRS 107A.260), when a non-judicial foreclosure had been started (NRS 107.100), and in those instances that were governed generally by Nevada’s Chapter governing receiverships (NRS 32.010 and 32.105).

The Act establishes a distinct body of statutory law governing the appointment of a receiver over mortgaged commercial real and personal property related to or used in operating the real property. Under the Act, a court may appoint a receiver in various instances which generally mirror the common law basis for appointment of a receiver, such as subjecting the property to a judgment or to prevent waste.

In addition, the Act provides that a receiver may be appointed in connection with the foreclosure or other enforcement of a mortgage if the appointment is necessary to protect the property from waste, loss, transfer, dissipation, or impairment. A receiver also may be appointed if a lender can prove one of the following conditions:

  • The mortgagor agreed in writing to the appointment of a receiver upon default;

  • The owner agreed after default and in writing to the appointment of a receiver;

  • The property and other collateral held by the mortgagee are insufficient to satisfy the secured obligation;

  • The owner fails to turn over mortgage proceeds or rents the mortgagee was entitled to collect; or

  • The holder of a subordinate lien obtains appointment of a receiver over the property.

The Act further contemplates that a receiver can be appointed ex parte and grants the court discretion to condition an ex parte appointment of a receiver upon the posting of security by the mortgagee.

The Act imposes certain requirements upon a receiver, the affected property owner, and even the Nevada Supreme Court. It also establishes the scope of a receiver’s powers, some of which are automatic, and some of which are conditioned upon court approval. Examples include:

  • The Nevada Supreme Court is empowered to adopt rules governing the ethics and independence of receivers and preventing self-dealing by a receiver;

  • The court cannot appoint a person as a receiver unless the person provides a statement, under penalty of perjury, that the person is not disqualified (and the Act identifies items that would disqualify a person from becoming a receiver);

  • A receiver is now required to post a bond in an amount to be determined by the court;

  • Upon his or her appointment, a receiver is empowered to make demands upon those who owe debts to the receivership estate, while a receiver would have to obtain court approval to incur debts for the use or benefit of receivership property that are outside the ordinary course of business and, among other things, to adopt or reject executory contracts;

  • Receivers must account for receivership property;

  • The appointment of a receiver operates as a stay of any other actions or proceedings against the receivership property;

  • The owner of property subject to receivership is obligated to cooperate with the receiver by providing records and by submitting to an examination under oath if subpoenaed by the receiver; and

  • If a receiver sells receivership property free and clear of liens via a private sale, the sale triggers borrower and anti-deficiency protections relating to deficiency judgments.

Currently, the Act has been introduced in Maryland, Michigan, and Oklahoma. Nevada and Utah have enacted it. The utility and efficacy of the Act will be seen in time, but as one of only two states to have adopted the Act, the Nevada judiciary may be at the forefront of issuing decisions and interpreting law concerning the Act.

Ballard Spahr’s Real Estate and Construction Litigation attorneys regularly assist clients in complying with new laws and regulations related to real property foreclosure and commercial real property receiverships, as well as other real estate related issues.

Copyright © 2017 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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