Real Estate Receivers in Michigan Now Required to Get Bonded
Michigan has adopted the Uniform Commercial Real Estate Receivership Act. Known also as House Bill 4471, the new law brings clarity in the functioning of commercial real estate receiverships.
The bill was approved by the Governor Rick Snyder on February 6, 2018 and will come into effect on May 7, 2018. With its introduction, legislators in Michigan aim to set predictability and uniformity in the process of appointment and functioning of receivers. The new rules apply only to receivers appointed after the effective date of the Act.
Notably, real estate receivers now have to obtain a surety bond, or another form of security, in an amount set by the relevant court. The bond is there to secure the faithful performance of their duties.
Below are the most important details about the new bond requirement, as well as an overview of the main legal changes for Michigan real estate receivers.
The main stipulations in the Act
The Uniform Commercial Real Estate Receivership Act brings together previous rules of the Michigan Supreme Court into law. In this way, it sets the legal framework for the appointment of receivers and their permitted actions. This makes the receivership process smoother for commercial mortgage lenders who want to use the help of an appointed receiver in selling a property.
One of the important changes is that now real estate receivers have to post a court bond, in an amount set by the relevant court that handles the case. The bond provider should be approved by the court. Alternatively, receivers may obtain other forms of security, such as a letter of credit or deposit of funds.
Besides the security requirement, the Act brings clarity in how receivers function. When there is a current judicial or non-judicial foreclosure, a receiver can be appointed. The appointment of a receiver is possible when the mortgagor has agreed that in case of a default, the mortgagee can use a receiver for the foreclosure.
When the receiver is appointed, they get the status of a lien creditor. The Act defines the actions the receiver can undertake – both with and without a court approval. This includes the right of the receiver to sell, lease, license, or exchange receivership property after obtaining a court approval. In this way, Michigan becomes of the numerous states recently that permit receivership sales, with set requirements regarding liens.
If you would like to operate as a real estate receiver in Michigan, you will be now required to obtain a surety bond when being appointed as such. The bond conditions will be determined by the court in charge on a case-by-case basis. The purpose of the security instrument is to guarantee the faithful discharge of your duties as a receiver.
In case you fail to fulfill them, a bond claim can be made against the bond. That’s how it can provide a compensation to harmed parties, which can be up to the bond amount you’ve obtained. Claims on the bond can be brought within one year of the date you have been discharged as a receiver.
In order to get bonded, you have to cover a small percentage of the bond amount, which is called the bond premium. It is typically between 1% and 3% of the required amount. Thus, if you have to obtain a $50,000 bond, your premium can be in the range of $500 to $1,500.
Do you need more information about the new bond requirement for Michigan real estate receivers? We’re here to help. Just call us at 877.514.5146.