Preservation Legal Tools: Receiverships

By Special Contributor posted 06-30-2015 15:57

  
 
By Lane Pearson

 The vacant and deteriorating Emerson mansion in Baltimore is the subject of a current receivership action." | Credit:  Baltimore Slumlord Watch
The vacant and deteriorating Emerson mansion in Baltimore is the subject of a current receivership action. | Credit: Baltimore Slumlord Watch
It is a familiar problem encountered by preservationists: A historic building is deteriorating due to neglect, and for various reasons—a stubborn property owner, clouded title, feuding heirs—no responsible party is willing or able to address the problem. The situation may arise in the context of a property owner who refuses to uphold the requirements of a preservation easement, or it could be the result of an abandoned property where the owner cannot be identified or located.

In cases like these, traditional legal remedies may be inadequate, requiring communities to explore other solutions. Enter the concept of receivership1 an equitable remedy that temporarily transfers possession of real property to a court-appointed receiver for the purposes of enforcing preservation easement obligations or abating building code violations.

A receiver is an officer of the court, appointed by the court in equity. The distinction between “law” and “equity” is a vestige of English common law, which recognizes that the interests of fairness and justice may be better served when the court can offer a discretionary, “equitable” remedy, like an injunction or an order for specific performance, rather than a remedy “at law,” which is generally limited to monetary damages. While title to a property in receivership remains with the owner, legal possession is held by the court; thus any interference with the receiver’s control of the property is treated as contempt of court, not mere trespass against the receiver personally.

Receivership can be divided into two categories: traditional equity receiverships and receiverships dictated by statute. In the case of a property owner who refuses to comply with the conditions of a preservation easement, a traditional equity receivership may be the appropriate remedy.

Equity Receiverships

 After years of neglect, this pair of historic row houses in Richmond's Church Hill neighborhood was condemned and demolished. | Credit: Lane Pearson
After years of neglect, this pair of historic row houses in Richmond's Church Hill neighborhood was condemned and demolished. | Credit: Lane Pearson
Traditional equity receiverships are governed by state law, and vary slightly from state to state. To initiate a traditional equity receivership, a party in interest, such as a preservation easement holder, must petition the court to appoint a receiver. Generally, a traditional equity receiver will not be appointed when there is another safe, expedient, adequate, and less drastic legal remedy available. While the existence of such a remedy is not sufficient to prevent the appointment of a receiver, it does weigh heavily against such an appointment.

The receiver should be disinterested, unbiased, and impartial as between the property owner and preservation easement holder. A receiver must give security, typically in the form of a bond, for the faithful performance of his or her duty as the court directs, and a receiver is not authorized to act until that security has been provided. The authority of the receiver is subject to the court, and the receiver acts for the court in the administration of such property.

All expenses incident to the safekeeping and preservation of the property are properly chargeable against it. In the case of a traditional equity receivership to enforce the conditions of a preservation easement, this means that all costs associated with the receivership as authorized by the court, including the physical restoration or repair work, can be assessed as a lien against the property. Ultimately, if the property owner does not make payment to the court to remove the lien, the court can order the sale of the property to recoup the cost of the receivership.

Statutory Receiverships

 Before image of the dramatic transformation of a blighted property in Richmond's Union Hill neighborhood. |  Credit: David Herring/Better Housing Coalition
Before image of the dramatic transformation of a blighted property in Richmond's Union Hill neighborhood. | Credit: David Herring/Better Housing Coalition
But what about the use of receivership in instances where no preservation easement exists? Without question, the greatest threat to historic places in America’s legacy cities is demolition-by-neglect. Wracked by population loss and disinvestment, historic communities from Pocahontas, Virginia, to Buffalo, New York, are struggling to address blight and abandonment. The problem is, of course, bigger than historic preservation. Blighted neighborhoods present a real and imminent threat to public safety, and are a troubling reflection of our nation’s deeply rooted racial and socio-economic tensions.

In the midst of grappling with such a formidable challenge, some communities have turned to statutory receivership as a solution. Vacant building receivership statutes are promoted, along with initiatives like land banking and tax sale reform, by organizations like the Center for Community Progress to help state and local governments develop a comprehensive toolkit for blighted properties. Baltimore, for example, utilizes a robust vacant building receivership program which has successfully targeted hundreds of blighted properties.

Vacant building receivership is usually designed and implemented as a preservation-neutral tool to eliminate threats to the public health, safety and welfare posed by blighted buildings. This means that receivership may result in the demolition of as many, or more, historic structures than it preserves. Nonetheless, vacant building receivership offers a useful tool that can be used to prevent demolition-by-neglect of historic buildings on a systemic scale. Some places, like the Commonwealth of Virginia, have enacted vacant building receivership statutes that specifically authorize only renovation and repair. However, this is the exception rather than the rule. 

While vacant building receivership statutes vary across the country, they generally allow a locality to petition the court to appoint a receiver to take possession of a vacant property that has become uninhabitable due to unabated building code violations. The court may authorize the receiver to address building code violations through repair or demolition, and assess the cost of this work as a first-priority lien on par with local real property tax liens. If unpaid, the locality can foreclose on the receivership lien using its tax foreclosure authority. This element of vacant building receivership adds an important secondary benefit: Not only is the blighted condition of the building abated, but (with some exceptions due to variable local tax foreclosure laws) the title is also cleared through the tax sale process.

 After image of the dramatic transformation of a blighted property in Richmond's Union Hill neighborhood. |  Credit: David Herring/Better Housing Coalition
After image of the dramatic transformation of a blighted property in Richmond's Union Hill neighborhood. | Credit: David Herring/Better Housing Coalition
The scale of population loss and blight in many legacy cities makes it impractical, if not impossible, to save every endangered historic building. However, vacant building receivership can be used to target certain neighborhoods where, with a little help, market forces and population dynamics might support the revitalization and repopulation of historic communities.

Note:

1. Receivership and conservatorship are similar concepts that are often referred to interchangeably. Despite their similarity, it should be noted that in certain contexts—a proceeding to address a distressed financial institution, for example—the difference between receivership and conservatorship can be meaningful. However, for the situations addressed in this blog post, the distinction is one of name only, and is determined by the applicable laws and customary usage of each state.

Lane Pearson is an attorney and urban planner based in Richmond, Virginia. A former law clerk for the National Trust, he currently serves as General Counsel for the Richmond Redevelopment and Housing Authority.

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