Court reaffirms that Receivership is the rule in commercial foreclosure actions, with few exceptions

Block 37It’s becoming apparent that apart from having financing in place to pay off the balance of a loan, no mortgagor in a commercial foreclosure action is going to be able to defeat a mortgagee’s request to appoint a receiver. 

Consider the recent case of Bank of America, N.A. v. 108 N. State Retail LLC et al. (Doc. No. 1-09-3523).  The matter involves the Block 37 project in downtown Chicago.  A consortium of lenders led by Bank of America filed suit to foreclose their interests in the retail and entertainment development when the developer defaulted on the terms of the loan.  According to the opinion, the developer signed several letters during the term of the project acknowledging the default at the request of the lenders to keep the project funded.  The events giving rise to the default were a failure by the developer to have $5 million in liquid assets and a failure to make sure the funds available under the loan equaled or exceeded the budget to complete the construction of the project as required by the loan agreement.

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Can A Mortgagor Ever Show Good Cause For Not Appointing A Receiver For Non-Residential Property?

It’s an interesting question that’s finally been put to the Illinois First District Appellate Court.

Part 17 of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq.) is dedicated to the rules surrounding possession of the property during foreclosure.  Enacted in 1987, the Illinois statute drastically limits a trial court’s discretion regarding the appointment of a receiver and essentially turns the appointment into a mandatory condition provided a mortgagee can show it is entitled to possession of the property.  When a mortgagee is entitled to possession there is a presumption in favor of the appointment and a mortgagor wishing to retain possession has the burden of overcoming that presumption by showing “good cause” for NOT appointing a receiver.  See, 735 ILCS 5/15-1702(a) and 1701(b)(2).

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