Bank Undersold a Property

Moycullen1

I am helping a friend whose bank appointed a receiver to manage and ultimately sell the only asset over which the bank holds security. Without going in to boring details the sale was a complete farce. I have been advised that a lender must make reasonable efforts to maximise the value of the asset over which they hold security before they follow on and try and squeeze further money out of a client. I believe there must be legislation requiring lenders in the case of distressed debt situations to achieve the best possible price when selling assets especially when doing so in a hostile manner. It seems very unfair that they can pursue clients for shortfalls that may arise especially when they didn't do the best they could with the only asset they have access to.

Any guidance would be greatly appreciated.

Marcusm

Your friend should ask the soldiers cutie they used to purchase the property as the mortgage document will contain the receiver appointment mechanism. The receiver is an agent of the borrower (not the bank) and is responsible for dealing in the assets with a specified duty of care and skill, it is not generally required to improve or spend funds improving the asset. Generally, putting the property through a public auction with enough notice will mean that the receiver has acquitted its duty. If your friend thinks he could have obtained a better price then he should have put that in progress prior to the appointment of the receiver.

Moycullen1

Marcusm wrote: »

Your friend should ask the soldiers cutie they used to purchase the property as the mortgage document will contain the receiver appointment mechanism. The receiver is an agent of the borrower (not the bank) and is responsible for dealing in the assets with a specified duty of care and skill, it is not generally required to improve or spend funds improving the asset. Generally, putting the property through a public auction with enough notice will mean that the receiver has acquitted its duty. If your friend thinks he could have obtained a better price then he should have put that in progress prior to the appointment of the receiver.

The problem is that the receiver only gave 3 weeks notice when selling the porperty and my friend was not allowed sell the property themselves and did not have any input into the selection of the receiver.

Marcusm

Moycullen1 wrote: »

The problem is that the receiver only gave 3 weeks notice when selling the porperty and my friend was not allowed sell the property themselves and did not have any input into the selection of the receiver.

It was irrelevant how many weeks notice he got from the receiver as once the receiver is appointed, the borrower is not allowed to interfere with the property. The qualities/qualifications of the receiver will be set out in the loan docs. The lender gets to choose whichever receiver it wants who satisfies that requirement.

Moycullen1

Marcusm wrote: »

It was irrelevant how many weeks notice he got from the receiver as once the receiver is appointed, the borrower is not allowed to interfere with the property. The qualities/qualifications of the receiver will be set out in the loan docs. The lender gets to choose whichever receiver it wants who satisfies that requirement.

My friends frustration lies with the manner in which the sale was conducted. The property was only on the market for 3 weeks before the sale which no one can argue is suffiicient to guarantee maximum return. My query relates to the obligations that apply to a receiver or lender in achieving the best price.

Marcusm

Moycullen1 wrote: »

My friends frustration lies with the manner in which the sale was conducted. The property was only on the market for 3 weeks before the sale which no one can argue is suffiicient to guarantee maximum return. My query relates to the obligations that apply to a receiver or lender in achieving the best price.

I assume it was an auction in which case it's probably an average amount of marketing. Your friend is free to sue the receiver if they feel they have not acted with sufficient skill. Not sure there's any other legal avenue open to them.

averagejoe123

A receivers job is to maximise the value of an asset. When personal guarantees are involved they will usually place the property on the open market to make the process as transparent as possible. I know of plenty of properties that have been on the market for less than 3 weeks. Frequently a buyer will come along and offer the asking price or close to the asking price on the condition that the house is taken off the market. Once the seller is satisfied that this buyer is not a tyre kicker and that they potentially run a risk in losing their interest by leaving the property on the market why wouldn't they agree to these terms?

newacc2015

Marcusm wrote: »

The receiver is an agent of the borrower (not the bank) and is responsible for dealing in the assets with a specified duty of care and skill, it is not generally required to improve or spend funds improving the asset. Generally, putting the property through a public auction with enough notice will mean that the receiver has acquitted its duty. If your friend thinks he could have obtained a better price then he should have put that in progress prior to the appointment of the receiver.

There are so many things wrong with this point. A receiver is appointed by the bank but is supposed to act in the interests of the borrower. The reality is that rarely happens. Think about it, the bank is appoints the receiver. They will only pick receivers that benefit them constantly.

I see in a later point you discuss the qualifications of a receiver. Are you aware a receiver doesnt require qualifications or are regulated in any forms? Literally anyone can be a receiver tomorrow.

Have you ever dealt with a bank? They appoint receivers left, right and centre. They often refuse to let you sell the house yourself.

Peregrinus

newacc2015 wrote: »

There are so many things wrong with this point. A receiver is appointed by the bank but is supposed to act in the interests of the borrower. The reality is that rarely happens. Think about it, the bank is appoints the receiver. They will only pick receivers that benefit them constantly.

But on the issue of how much to sell the house for, the bank's interest and the debtor's are usually aligned; if the house is to be sold, they both want it to be sold for the highest attainable price. The bank wants this since it will go furthest towards repaying the loan; the debtor wants it since it minimises the shortfall for which he remains liable.

Similarly, all other things being equal, both parties share an interest in having the sale completed sooner rather than later, since this minimises the interest that continues to accrue. A receiver will not defer a sale merely because he expects a higher price by doing so; he will only defer the sale if he expects the price will be so much higher that it will offset the interest that accrues in respect of the deferral period.

Marcusm

newacc2015 wrote: »

There are so many things wrong with this point. A receiver is appointed by the bank but is supposed to act in the interests of the borrower. The reality is that rarely happens. Think about it, the bank is appoints the receiver. They will only pick receivers that benefit them constantly.

I see in a later point you discuss the qualifications of a receiver. Are you aware a receiver doesnt require qualifications or are regulated in any forms? Literally anyone can be a receiver tomorrow.

Have you ever dealt with a bank? They appoint receivers left, right and centre. They often refuse to let you sell the house yourself.

I find it difficult to respond comprehensively to your post as it is short on the specifics of what I have misstated.

To address some of the points; I stated that the receiver is an agent of the borrower. That is fact and is the reason why the OP's friend has an entitlement to hold the receiver to account. Of course it is the lender which chooses the individual to act as receiver and the timing of his appointment. The ability to appoint the receiver arises as a result of a breach of the terms of the lending documents but cannot, thankfully, be automatically triggered but must come after the lender's forebearance has been worn down.

With the exception of operating businesses or truly unique assets, it is rarely sensible for a receiver to involve the borrower in the act of realising the assets. The borrowers opportunity for this arises at an earlier stage before the lender's forebearance wears thin.

You seem to have taken my exhortation to the OP to look to the lending documents for the receiver's qualifications as meaning there had to be some. That is not the case but properly constructed documentation will set some out; requiring a qualified accountant or solicitor or a property agent. Had there been a statutory or common law qualification for appointment as a receiver I would have pointed it out.

My experience with receivers relates to negotiating both as a borrower and lender for finance transactions over many years; I am not a "new" accountant!