A receivership "by its very nature involves a weighty responsibility," 149 Clinton Ave. North, Inc. v Grassi, 51 A.D.2d 502, 382 N.Y.S.2d 185, 189 (4th Dep't 1976), for the receiver must fulfill the legal and statutory duties of preserving and protecting the property while discharging fidiciary responsibilities.
The "accumulation of funds is a necessary incident of the receiver's duty to repair the premises, to keep emergency funds on hand and to ensure that regular upkeep and maintenance occur. . ." Kisosoh, 1992 U.S. Dist. LEXIS 10966 at *13; thus evaluation of the performance of the receiver must take into account the ability of the receiver to comply with his duties.
In the present case, the root cause of the controversies is the dilemma created where aging residential property has fallen into disrepair and the property yields insufficient funds to finance the correction of municipal housing code violations or even of serious health and safety hazards. A receiver has been appointed with inadequate monies to carry out his authorized duties, and a municipality has been frustrated in its efforts to require the maintenance of appropriate housing units. A secured creditor, meanwhile, has been reluctant to pour additional funds into the property presumably constituting the security, but the marketability and monetary value of which are uncertain.
Nonetheless, the parties, and the receiver as a fiduciary and officer of the court, bear a responsibility to make every effort to resolve the issues presented to the extent possible in light of the resources available.
One of the problems here could be that due to lack of coordination among the personnel involved, the Village has unintentionally placed obstacles in the form of excessive or burdensome requirements which may prevent the receiver from performing repairs that might otherwise be possible within the financial resources of the income stream of the property.
All parties are directed to meet together to work out reasonable means of protecting the value and safety of the property and to make joint recommendations to the court where necessary.
I direct that the receiver shall continue to act, collecting the rents and maintaining the subject property in accordance with my order of September 29, 1992, as modified by this order.
The receiver shall proceed diligently to expedite vital repairs and to increase monthly revenues through prompt resolution of any outstanding disputes with tenants and by seeking additional rentals, with the cooperation of the Village as set forth below. I have every confidence that the receiver will perform his duties in a prudent and effective manner in light of the exigent circumstances in this case.
1. Necessary maintenance and repairs including the correction of any substantial health or safety violations shall have priority over other uses of funds produced by the rental income on the property. A receiver, like an owner or possessor, would be required by any court of equity to use available funds for the most urgent health and safety requirements as a priority over other uses except necessary maintenance and, in fact, the order of September 29, 1992 so provides. Further, I increase to $ 10,000 the threshold for single exigent health or safety repairs which the receiver may make without seeking prior approval of the FHLMC or the court should such funds be available.
The receiver is to continue to cause truly exigent repairs to be made or begun immediately. While these initial repairs are proceeding, the receiver is to prepare within three weeks of the date of this order a list of priority health and safety hazard repairs and their cost, utilizing the engineer's report, the Village's inspection list of March 18, 1993, and any other reasonable sources. Such list is to be modified or updated as necessary and provided to the FHLMC and to the Village on a monthly basis, indicating which repairs have been completed.
2. The village is expected to take whatever reasonable steps it can to remove or modify whatever barriers may exist with respect to Village regulations regarding such repairs. I also expect the village not to interfere with repairs necessary to eliminate hazards to health and safety, and in particular to reconsider the necessity for work permits for urgent repairs whether or not exceeding $ 100, for supervision only by the Village housing inspector, or for employment only of contractors licensed by the Village, provided that the receiver notify the Village monthly of repairs undertaken and completed during the preceding month, as set forth in paragraph 1 above.
3. The receiver shall apply to the court for approval of any written request for authority to cause to be made vital repairs costing over $ 10,000 or costing more than monies available in the account, if a request for such costs was submitted to FHLMC and denied.
As a receiver is not the agent of the mortgagee, see footnote 7 above, in deciding the motion now before me I need not reach the issue of the appropriate role of the lender in circumstances such as those presented here. But at such time as the FHLMC denies a written request for funds for exigent repairs and the receiver seeks further guidance from the court with respect to that request, FHLMC shall submit a memorandum of law in accordance with my Individual Rules of Practice on the scope of responsibility for urgent health and safety repairs of a plaintiff who is seeking to foreclose on property and has sought appointment of the receiver.
4. The accounting of receipts and disbursements provided in "Schedule A," attached as Exh. B to the receiver's moving papers, indicates that the $ 10,000 advanced by FHLMC at the beginning of the receivership still remains in the account; the receiver and FHLMC are directed to consider whether maintaining a reserve of that amount in the face of outstanding urgent health and safety repairs is appropriate.
5. With respect to seeking every possible avenue for increasing revenues, the receiver is directed to initiate requisite state proceedings for securing the release of any rents now held in escrow pursuant to a rent strike or otherwise, to be utilized for urgent repairs; the Village is to support any such application without regard to whether former violations have or have not been repaired. That one must repair property before getting monies to repair is a self-defeating proposition I would not expect the Village to maintain.
6. In instances in which the Village believes that other sources for increasing rental income might be available, it would be appropriate for the Village to investigate the possibility of such funding in light of the receiver's arguments with respect to the difficulties presented by the Village's suggestions.
7. If the village believes that additional apartments could be rented, it would be appropriate for the village to assist the receiver in curing any errors by the prior owner with respect to registration of the building or determining the proper rent, and to confirm that no violation of other town ordinances would be incurred, or that such violation would be waived.
8. FHLMC is reminded that it is to remit to the receiver any back rents recovered pursuant to part III of my memorandum order dated May 27, 1993 and the partial judgment against Spark Tarrytown, Inc., issued on July 19, 1993.
9. The receiver shall within three weeks of the date of this order submit a response to the Village's contention that total receiver and management fees are excessive for a building of the type at issue here, including any comparisons or statistical information.
10. When appointing the receiver in this case, the court did not contemplate that the receiver would be confronted with the conundrum presented here, i.e., potential personal liability where the building's cash flow did not even initially support exigent repairs.
Based on the facts of this case and the insufficiency of monies generated by the property, I direct that the receiver shall have no personal liability for any acts or omissions in connection with the performance of his duties as receiver. This relief is to be distinguished from creating immunity "'by judicial fiat in favor of receiver-held property,'" Metropolitan Savings Bank v. Residual Realties, Ltd., 102 Misc. 2d 1105, 425 N.Y.S.2d 508, 511 (Sup Ct, Kings Co 1980) (citation omitted). It leaves open to the municipality the option of bringing an action against the proceeds of the sale of the property where the receiver is properly carrying out his duties. The receiver's obligation to raise with FHLMC as the mortgagee the problems presented by lack of funds to complete critical repairs is referred to in paragraph 3 of this part V.
11. Any suits against the receiver or the property shall be brought in this court. Generally, a receiver may not sue or be sued without the express permission of the court that appointed him, a "rule 'devised in order to protect the receiver and the estate against the harassment and expense of possibly unnecessary litigation and to preserve the estate for the benefit of all creditors equally.'" Independence Savings Bank v. Triz Realty Corp., 100 A.D.2d 613, 473 N.Y.S.2d 568, 569 (App Div 2d Dep't 1984) (citation omitted).
An action to enforce a housing code comes within the scope of this rule of New York law, because it "affects the res insofar as the costs of litigation, the expense of remedying any violations, and the payment of any penalties would presumably have to be borne by the receivership administration, the money coming from receivership funds or out of the property itself." Id. at 569-79 (citation omitted). My directive is also in aid of this court's jurisdiction and to protect or effectuate its judgments. 28 USC § 2283.
Dated: White Plains, New York
August 12, 1993
VINCENT L. BRODERICK, U.S.D.J.