Opinion
No. HHB CV054007042 S
February 16, 2006
MEMORANDUM OF DECISION RE MOTION FOR APPOINTMENT OF RECEIVER OF RENTS (#102.00)
The plaintiff has filed an action seeking to foreclose a mortgage secured by two properties known as 91 Pine St. and 97-99 Pine St., Bristol, Connecticut. As part of the action, the plaintiff has filed, pursuant to Practice Book § 21-20 and General Statutes § 52-504, a Motion for Appointment of Receiver of Rents dated November 22, 2005 (#102.00). Defendants have filed an Objection to Motion (#105.00). A hearing was held on February 9, 2006 relative to both the motion and the objection thereto.
On March 31, 1998 the defendants executed a note and mortgage to the plaintiff in the principal amount of $208,000. The properties secured by the mortgage include both a residential property, and, a commercial property which has as its tenants a laundromat, restaurant and hair salon. The defendants had also obtained from the plaintiff a line of credit which was due to be paid in full in February 2005 but the defendants defaulted thereon. Exercising cross-default provisions within the line of credit, the promissory note and the mortgage, the plaintiff declared the mortgage to also be in default and accelerated the balance due thereon. Through the testimony of the plaintiff's lending officer, the mortgage debt at the time of the hearing was estimated to be in excess of $167,500 not including legal fees due the plaintiff under the terms of the loan documents. Testimony was also presented by the plaintiff's appraiser that the two properties collectively had a fair market value of $525,000. (Plaintiff's Exhibit 5.)
Plaintiff contends that the security of its loan is jeopardized and that the appointment of a receiver for the properties is justified as the rents of the properties are not being collected or applied to the debt owed, taxes and insurance relative to at least one of the properties have been left unpaid forcing the lender to advance such payments, the defendants are severely neglecting the properties, their condition is deteriorating, there are major security and maintenance issues, and the tenants are threatening to vacate. It further argues that the loan documents authorize the appointment of a receiver absent any of the above issues regarding the properties. The defendants contend that no receiver of rents is necessary, regardless of the issues cited by the plaintiff, given that there appears to be significant equity in the properties and therefore the lender has adequate security for its loan and expenses pending the completion of the foreclosure proceedings.
Based on the credible testimony of the lending officer and appraiser the court finds that the issues claimed by the plaintiff do exist but not with the degree of severity alleged. This alone however, does not preclude the appointment of a receiver. "The object of appointing receivers is to secure the property in dispute from waste or loss." Hartford Federal Savings Loan Assn. v. Tucker, 196 Conn. 172, 175, 491 A.2d 1084, cert. denied, 474 U.S. 920, 106 S.Ct. 250, 88 L.Ed. 258 (1985). Our courts have looked at various factors in determining whether to appoint a receiver of rents. These include: (1) Whether waste or loss is occurring; Hartford Federal Savings Loan Assn. v. Tucker, supra, 196 Conn. 175; (2) the risk to the foreclosing party that he will recover less than the full amount of his debt and whether the deficiency is certain or only threatened; Prudential Ins., Co. of America v. Calabrese, Superior Court, judicial district of Waterbury, Docket No. CV 0127550 (August 11, 1995, Pellegrino, J.) ( 15 Conn. L. Rptr. 13); and (3) whether there is a provision in a mortgage deed which allows for the appointment of a receiver in the event of the mortgagor's default. See Jewett City Savings Bank v. Weiss, Superior Court, judicial district of Windham, Docket No. CV 0053937 (November 21, 1996, Sferrazza, J.) (holding that "where the mortgage deed permits the appointment of a receiver and there is likely a deficiency after foreclosure, the court may grant a motion to appoint a receiver)." Cross v. O'Neil, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 020189033 (December 6, 2002, Lewis, J.) (33 Conn. L. Rptr 449).
"An action of foreclosure is peculiarly equitable and the court may entertain all questions which are necessary to be determined in order that complete justice may be done between the parties." Hartford Federal Savings Loan Assn. v. Tucker, supra, CT Page 3214 196 Conn. 175. Generally, the appointment of a receiver is justified if the security is insufficient to support the debt or if the assets to which it would naturally look for payment may be wasted or lost during protracted litigation. Id. Ultimately, an application for a receiver of rents is within the sound discretion of the court. Chatfield Co. v. Coffey Laundries, Inc., 111 Conn. 497, 501, 150 A. 511 (1930).
In this case, there is no question that the properties have begun to have maintenance issues which need to be addressed. Moreover, the plaintiff has had to both advance a tax payment and obtain insurance coverage for the properties. However, our law finds the appointment of a receiver of rents to be a drastic remedy. Massoth v. Central Bus Corp., 104 Conn. 683, 695, 134 A. 236 (1926). In reviewing the three factors cited above for the consideration of the appointment of a receiver, the court notes the following. As to the first factor, it may be said the defendants are in an early stage of failing to maintain the property or to pay the taxes and insurance thereon. At this point, however, the failure of the defendants to maintain their own properties will deleteriously affect their own interests before it affects the interests of the plaintiff. As to the second factor, it cannot be said at this point in time that there will be a deficiency and that the plaintiff will not be able to collect the full amount of its debt from the properties. Here, the evidence clearly shows that there remains significant equity in the property to more than adequately secure the amounts due the plaintiff. Moreover, it is noted that the litigation has not been protracted to date. As to the third factor, although the provisions of the loan documents allow the plaintiff to seek the appointment of a receiver, it is unlikely that there will be a deficiency after foreclosure. The mortgage provisions do not obligate a court to grant an application for receivership. The court must consider the equities of the matter in making such a determination. Federal Deposit Ins. Corp. v. Main Street Properties, Superior Court, judicial district of Fairfield, Docket No CV 880250337 (August 10, 1990 Speer, J.) ( 2 Conn. L. Rptr. 234); New England Savings Bank v. Deros, Superior Court, judicial district of New London, Docket No. CV 0519330 (November 1, 1991, Axelrod, J.) ( 5 Conn. L. Rptr. 165). Accordingly, plaintiff does not meet two of the three criteria set forth above for the appointment of a receiver of rents.
For the foregoing reasons the Motion for Appointment of Receiver of Rents is denied and the objection thereto is sustained. The plaintiff is not precluded from seeking appointment of a receiver of rents at a later date provided there is a material change of circumstances relative to the criteria set forth above for such an appointment.