Condo Fever--Third Essay

One can assume that the new WA receivership statute, RCW 7.60.005 et seq., will receive quite a workout over the next few years. Even in this very early case (the law was passed in 2004) a number of procedural glitches were experienced. For example, the receiver, upon being appointed on June 13, moved for a hearing on June 24 for the sale of three of the 72 properties whose closing date was just prior to the commencement of the receivership but whose sale now needed to be approved by the court. Attorneys for some of the creditors entered and argued that the law required a 30-day notice provision for the commencement of this type of activity. So, even though the court provisionally approved the sales of the units at the end of June, it waited until a procedure for sales was set up and approved on July 16 (more than 30 days after the receiver was appointed) until the sales for the first three were actually approved (July 18).

Again, the receiver at first wanted to give a report eight months after the commencement of the receivership, but the creditors kindly pointed him to RCW 7.6.100, which says that a "general receiver shall file with the court a monthly report of the receiver's operations and financial affairs unless otherwise ordered by the court..." Thus, the kind of issues that didn't go as "smooth as silk" in the "first rounds" of this one had to do with the length of the receivership (wanting to extend it from two to eleven months); the frequency of receiver reports; when the hearings/objections to sales of property should begin; what framework should be established to enable that to happen; and the posting of bond by the receiver. Some objections also arose to the fees for the receiver ($1,000 per unit sold), but I think the court won't probably be too sympathetic to that one. Objection was also raised regarding the lack of inclusion of the "Belmont property" in the lawsuit; the banks responded by saying that such property was, as yet, unimproved. Each creditor has to file a "proof of claim" with the receiver by July 31; I suppose that continuing work after that time will somehow be incorporated in that requirement.

All of these things don't implicate large sections of some of the complex paragraphs of the receiver statute. For example, no one has yet broached the subject of executory contracts and unexpired leases or the possibility of abandoning some of the property (RCW 7.60.130 and 150). Though I haven't written about the "automatic stay" provision in federal bankruptcy law, I should note that RCW 7.60.110 requires an automatic stay of all pending lawsuits until the termination of the receivership. In its most basic form, a receiver is like a "traffic cop," who manages the liabilities and assets of the debtor for the benefit of the creditor--in the order in which the debts were assumed, beginning first with the secured creditors. The section of the law on priorities (RCW 7.60.230) lists the priority order of seven groups of creditors who are "standing in line" to get the assets.

How Things Go From Here

Thus, the receiver has about 10 months, if the extension was granted, to sell the remaining 69 units. The first three of the 72 went through easily on July 18 because these had already closed prior to the commencement of the receivership. From here on out the receiver's attorney will file with all creditors and interested parties a schedule of the upcoming sales to be approved by the court. Objections must be registered by a certain date. If there are no objections, an ex parte order to sell will be entered a few days after (4?) objections were due. For example, the next sales to come on line are being prepared now. Objections have to be submitted to five people, including the judge, receiver, receiver's attorney, etc. by Friday, July 25. If there are no objections, the judge will likely sign the order on July 29.

The next batch of sales only includes two condos, one in the Marc-Anna and one in the First Galer, but already there may be problems with one of these. Indeed, since these purchase and sales agreements were signed about the time the receivership was commenced, one or both may want either to get out of the deal or try to see if the seller will reduce the price. After all, those who got in before or immediately after the receivership commenced may have felt that they were paying for a "riskless" transaction. The rules have changed now, and written objection is due by July 25. If the receiver catches wind of the fact that an objection is in the air, I would think he would take the property off the sell list until the situation is clear. I do not know if any properties are "lined up" for later than this week.

Speaking of "clear," it should be added in conclusion that the goal of the entire process is to allow the receiver to sell the estate property "free and clear of liens and of all rights of redemption, whether or not the sale will generate proceeds sufficent to fully satisfy all claims secured by the property." The buyers, therefore, get to move into their places and the receiver and his attorney must continue to present bids to the creditors for their objection/non-objection. No one knows at this point how much the value of the condominium units will drop as the year wears on. Will they keep their value? How much will they decline? Will the banks have to foreclose after the receivership terminates? If so, will they sell individual units at "fire sale" prices or sell the entire building and have the next owner try to sell the units? So many uncertainties, but someone should be able to make some money. That is, after all, the American way... It all promises to be a long and arduous procedure.

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