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Tool 3: Vacant Property Receivership

Tool 3: Vacant Property Receivership

Even under aggressive vacant property regimes like those in Newark or San Diego the owner retains the option of demolishing the building rather than restoring it to use. Where a city or non-profit wants to make sure that a particular vacant building be preserved, it needs to have a tool: vacant property receivership (called possession or conservatorship in some states) fills that purpose.

 

While specific provisions vary from state to state, as a general rule receivership works like this. The municipality or a qualified non-profit entity applies to the court to be appointed the receiver of the property to restore the property to use. Once appointed, the receiver has physical control of the property, can borrow and spend money to rehabilitate the property and can place liens against the property for the amount spent. Once the property has been rehabilitated, the owner may be able to regain control by making the receiver whole, or the property is sold by the court or by the receiver.

 

Receivership is a powerful tool. Because it is powerful, it represents a serious commitment by the municipality or non-profit entity, and should be pursued carefully. Key questions to ask before embarking on receivership are:

  • Does state law permit vacant property receivership? While many states do, either specifically or implicitly, many do not. Some courts may entertain a receivership petition even without explicit state law, but it is far better to be guided by a strong state statute as in Massachusetts or Pennsylvania.
  • Is the building a realistic candidate for receivership? Can the building be rehabilitated, and is rehabilitation economically feasible in light of the market and the available public and private resources?
  • Does state law give the receiver’s lien priority status over other liens? If the receiver’s lien is not a priority lien, it may be difficult to borrow funds for the rehabilitation, and it may be difficult to recover the costs of receivership.
  • Does state law provide adequate means for either recovering receivership costs or getting the property into responsible hands after rehabilitation? The city should be sure that it has a sound exit strategy at the end of the process.

 

In addition to Massachusetts and Pennsylvania, New Jersey, Ohio, Indiana and the city of Baltimore have strong vacant property receivership laws.

Go to an excellent article by Jim Kelly on receivership in general and how it works in Baltimore in particular

Go back to Dealing with Vacant Property Owners Homepage