Washington State Receivership Act (Ch RCW) 2011 Amendments. (Engrossed House Bill 5058)

Transcription

1 Washington State Receivership Act (Ch RCW) 2011 Amendments (Engrossed House Bill 5058)

2 The 2011 amendments to the Washington State Receivership Act ( Act ) represent the first major amendments to the Act since its last major overhaul in The 2004 amendments greatly improved the Act, and were largely aimed at making it function more like the Bankruptcy Code. For example, among the 2004 amendments were the addition of an automatic stay following the filing of receivership petition, a statute authorizing sales of receivership assets free and clear of liens and streamlined claims administration procedures. In the years since the 2004 amendments, the Superior Court bar and bench have come a long ways in gaining a better understanding the purpose and operation of receiverships. However, the Act remains a work-in-progress, and the 2011 amendments were largely aimed at clarifying a few ambiguities and streamlining some of the procedures established by the 2004 amendments, and did not include many (if any) substantive changes. This article summarizes most of the 2011 amendments to the Act. Provisional Appointment of a Receiver RCW (1)(b) The grounds for provisional appointment are set out in RCW (1)(b) and are in addition to the grounds set forth in RCW (1)(a), which generally grants a creditor the right apply for the appointment of a receiver when the petitioning creditor has an interest in the subject property or when the property s revenue producing potential is in danger of being impaired. The subject property under paragraph (a) might be any type of property, while the property contemplated by paragraph (b) is typically real property, though (b) applies to both real and personal property. The Act has always provided for provisional appointment of a receiver during the pendency of a foreclosure, but the former statute was ambiguous as to what constituted a pending foreclosure (be it judicial or non-judicial). Regardless of whether the property is real or personal, or the foreclosure judicial or non-judicial, the 2011 amendments to RCW (1)(b) do away with the concept of pendency and instead focus on whether the foreclosure action has commenced. The Amendments

3 clarify that: (i) judicial foreclosure is commenced in the same manner a lawsuit is commenced under CR 3(a), (ii) non-judicial foreclosure of a security interest in real property is commenced upon service of a notice of default under RCW (8), and (iii) a proceeding for forfeiture under a real estate contract is commenced upon the recording of the notice of intent to forfeit described in RCW The mostly likely practical effect of this amendment is to accelerate by thirty days the point at which a petitioning creditor may have a receiver appointed while simultaneously performing a nonjudicial foreclosure of real property. Under the former statute, a fair argument could have been made that a recorded Notice of Trustee s Sale was required before a receiver could have been appointed. Under the amendment, however, issuance of a Notice of Default (which must occur at least thirty days before recording of the Notice of Trustee s Sale) is sufficient to commence non-judicial foreclosure of a real property security interest. Provisional Appointment of a Receiver RCW (1)(ee) and (ff) Revised RCW (1)(ee) and (ff) address the commencement of foreclosure proceedings for liens securing unpaid homeowner dues and assessments under the Horizontal Property Regimes Act (Ch RCW) and Washington Condominium Act (Ch RCW). Under both Acts (and most condominium declarations) a lien for unpaid dues or assessments may be foreclosed judicially or nonjudicially. The revisions track those of paragraph (b) by confirming that judicial foreclosure of a homeowners association s lien is commenced as provided under CR 3(a) and a non-judicial foreclosure is commenced upon service of the Notice of Default under RCW (8). Court s Discretion to Modify Timeframes RCW (2)

4 Amended RCW (2) grants the Court, for good cause shown, the power to shorten or expand the timeframes set forth in the Act. Receiver s Creditor Matrix RCW (2) Amended RCW (2) expands the timeframe for a general receiver to file an initial schedule of known creditors from twenty days to thirty-five days. Receiver s Publication RCW Amended RCW expands the timeframe for a general receiver to publish notice of the receivership from twenty days to thirty days. Automatic Stay RCW While bankruptcies are almost always filed by a debtor hoping to slow down its creditors, receiverships are more commonly filed by a creditor seeking speed up its remedies. In that sense, receiverships can be more akin to involuntary bankruptcies, though often receiverships are mostly consensual. As noted above, the Act includes an automatic stay provision (RCW ), which can be somewhat awkward when a creditor initiates the receivership. Most creditors certainly do not want to stay their own enforcement proceedings, and amended RCW clarifies that a petitioning creditor does not inadvertently stay its own foreclosure when obtaining provisional appointment of a receiver under (1)(b). Estate Administration RCW Amended RCW (6) addresses the notice requirements applicable to a receiver s abandonment, disposition or distribution of estate property. Generally, parties in interest are entitled to thirty days notice of the hearing on any motion for abandonment, disposition or distribution of

5 receivership property. The former exception for emergency disposition of perishable property has been revised to apply to property subject to eroding value. Presumably, the amendment is intended to broaden the types of property to which the exception might apply (for example, intellectual property might be subject to eroding value though not perishable), and avoid limiting the exception to agricultural products and other perishable foods. Claims Administration RCW (d) and (e) Amended RCW (d) increases from $2,000 to $10,950 the amount of priority enjoyed by the holder of a claim for unpaid wages, salaries, commissions, severance, vacation or sick leave pay or contributions to an employee benefit plan, earned by the claimant prior to the appointment of the receiver. The amendment also expands the relevant pre-appointment period from ninety to one hundred eighty days. Amended RCW (e) increases from $900 to $2,425 the amount of priority enjoyed by the holder of an allowed unsecured claim if the claim arises from a deposit for property or services purchased or leased for the claimant s personal, family or household use where the debtor/defendant failed to deliver the property or services. Sales Free and Clear RCW Amended RCW (2) clarifies the circumstances under which a general receiver may sell receivership property free and clear of liens and rights of redemption, regardless of the whether the sale will generate sufficient funds to satisfy secured claims. The amendments clarify that a receiver may sell real property free and clear if the real property is the type of property the debtor would have sold in its ordinary course of business. The purpose of this amendment is to confirm that sales of condominium units and unsold residential lots can be made free and clear of liens and rights of redemption, and such

6 sales are not limited to those made other than in the ordinary course of business under subsection (1) of the statute.