Most deeds of trust in the State of California include provisions giving the deed of trust holder a lien in “rents, issues and profits”. Simply stated, this means that a real estate lender who holds a deed of trust against income producing real property has a right to claim a lien in the income produced from that real property.
Sometimes the owner of a income producing real property subject to a deed of trust is unable or unwilling to make the payments due on the promissory note secured by the trust deed. At the same time, the owner of the real property continues to collect the rents and uses them for purposes other than making the payments due the lender. Consequently, the promissory note and deed of trust become defaulted and a foreclosure is commenced. During the foreclosure, however, the owner of the real property continues to collect the rents from the real property. Often, the holder of the deed of trust desires to look to the rental income from the real property in order to satisfy the obligation it is owed. Because of the nature of California real estate law, the lender can not intercept the rents paid by the tenants in the real property without first commencing a judicial foreclosure proceeding in the Superior Court.
Once that proceeding is commenced, the lender can seek the appointment of a receiver to take possession of the real property, collect the rents and pay the operating expenses related to the real property. Concurrently, the lender may continue with its foreclosure (non-judicially-which means outside the court proceeding that was commenced to appoint a receiver). Once the non-judicial foreclosure sale has been completed, the rents collected by the receiver will be paid over to the deed of trust holder and the receivership is terminated.
Ordinarily, Equitable Transitions, Inc. does not become involved, through David R. Haberbush as receiver, with rents issues and profits receiverships. However, there are certain circumstances where the appointment of Mr. Haberbush as receiver is justified, especially in instances of suspected fraud and where there is the necessity of dealing with complex transactions involving the real property. Absent these circumstances, the deed of trust holder is well served by seeking the appointment of a receiver who is also a licensed real estate property manager. This is because, in most instances, real estate property management is all that is involved in the receivership process and the addition of Mr. Haberbush as receiver is an unneeded expense.
