The Receiver Just Took Over Your Property. Now What?

What Texas Commercial Real Estate Borrowers Need to Know About Receiverships

A commercial borrower misses a payment. The lender sends a default notice. Workout discussions begin while the borrower tries to refinance, sell the property, inject new capital, or stabilize operations.

Then the lender makes a different move. It asks a judge to appoint a receiver.

For an owner who has spent years acquiring, financing, improving, and operating a property, receivership can be one of the most consequential events in a commercial loan dispute. The borrower may still own the property, but someone appointed by the court may now collect the rents, control bank accounts, communicate with tenants, pay expenses, and make operational decisions.

That is why a motion to appoint a receiver should never be treated as just another filing in a foreclosure case. It is a fight over control.

What Is a Receiver?

A receiver is a neutral person appointed by the court to take custody or control of property while litigation proceeds.

Texas law gives receivers substantial authority. Subject to the court’s control, a receiver may take possession of property, receive rents, collect and compromise demands, make transfers, and perform other acts concerning the property that the court authorizes. Tex. Civ. Prac. & Rem. Code § 64.031.

For an apartment complex, office building, hotel, shopping center, or other income-producing property, control of the rents can effectively mean control of the property. The practical question therefore is not simply whether the lender can eventually foreclose. It is: Who controls the property while the dispute is being resolved?

The Statute Sets a High Bar, But the Loan Documents Matter

Texas expressly authorizes receiverships in an action by a mortgagee to foreclose a mortgage and sell the mortgaged property. Tex. Civ. Prac. & Rem. Code § 64.001(a)(4).

Section 64.001(c) says that, under that statutory foreclosure provision, a court may appoint a receiver only if the mortgaged property appears to be in danger of being lost, removed, or materially injured, or a condition of the mortgage has not been performed and the property is probably insufficient to discharge the mortgage debt.

Standing alone, that language makes valuation, maintenance, taxes, insurance, rents, and the condition of the collateral potentially important. But commercial borrowers should not assume that substantial equity automatically defeats receivership. The deed of trust may materially change the analysis.

A Contractual Receivership Clause Can Be Powerful

Commercial deeds of trust frequently state that, after default, the lender is entitled to appointment of a receiver. Some provisions go further and purport to authorize receivership regardless of the value of the property, adequacy of the security, or solvency of the borrower.

In Riverside Properties v. Teachers Insurance & Annuity Association of America, the deed of trust expressly provided for appointment of a receiver following default. The Fourteenth Court of Appeals held that the parties’ agreement carried evidentiary weight and could support appointment under equitable principles even though there was no contention that the property was insufficient to discharge the debt. The court explained that the contractual recital was “not binding on the court but is one of the equities to be considered.” Riverside Properties v. Teachers Insurance & Annuity Association of America, 590 S.W.2d 736, 738 (Tex. Civ. App.—Houston [14th Dist.] 1979, no writ).

The State Bar of Texas’s treatment of the issue likewise recognizes Riverside as authority that an express agreement to appointment of a receiver may sustain receivership even where the property is not threatened and is sufficient to discharge the debt.

For borrowers, the lesson is immediate: read the receivership clause before developing the defense. The note, deed of trust, assignment of rents, cash-management agreement, and related loan documents may be just as important as the property’s value.

Valuation May Still Become the Real Fight

Where the lender relies on the statutory foreclosure route, or the contractual language leaves room for dispute, valuation can become critical. A lender claiming $10 million is due presents a materially different record if the property is worth $14 million rather than $7 million.

A borrower should scrutinize the lender’s valuation evidence. Is there a current appraisal? A broker opinion? An internal estimate? Is the lender discounting the property’s value based on repairs that are recommended rather than presently necessary?

There is another question that is easily overlooked: What money does the lender already control?

Commercial lenders may hold repair reserves, replacement reserves, tax escrows, insurance proceeds, cash-management funds, interest reserves, or other borrower funds. If a lender contends that its collateral is inadequate while simultaneously controlling substantial funds associated with the property or loan, counsel should determine exactly what those funds are and what the loan documents say about their application. That issue will be the subject of the next article in this series.

The First 72 Hours Matter

Texas Rule of Civil Procedure 695 generally prohibits appointment of a receiver over fixed and immovable property without notice and requires at least three days’ notice of the hearing.

Three days is not much time.

Counsel should immediately obtain the complete loan documents, default notices, payment history, rent roll, operating statements, bank records, reserve balances, insurance information, tax status, property-condition information, and current valuation evidence.

The objective is to answer the lender’s narrative with evidence. If the lender says the property is deteriorating, show the maintenance records. If it says the collateral is inadequate, address valuation. If it says rents are being diverted, show where the money went. A receivership hearing should not become a contest between a lender armed with evidence and a borrower armed with explanations.

Check the Bonds

Texas procedure contains another important safeguard. Rule 695a requires the party applying for the receiver to file a bond in an amount fixed by the court and sufficient to cover probable damages and costs if the receiver was wrongfully appointed. That is separate from the receiver’s own bond under Texas Civil Practice and Remedies Code § 64.023.

Texas appellate courts have enforced the applicant-bond requirement. In Sutton v. Angell, No. 04-12-00802-CV, 2013 WL 1850798, at *1–2 (Tex. App.—San Antonio May 1, 2013, no pet.), the court reversed an order appointing a receiver because the required applicant’s bond had not been filed. In Peek v. Mayfield, No. 02-20-00107-CV, 2021 WL 3205065, at *5 (Tex. App.—Fort Worth July 29, 2021, no pet.), the court likewise concluded that the applicant’s bond requirement had not been satisfied and ordered the receivership dissolved.

If the Receiver Is Appointed, Fight Over the Order

Losing the initial appointment fight does not necessarily end the dispute. The receivership order defines the receiver’s authority. Counsel should examine whether the receiver can merely collect rents or operate the entire property; hire or terminate management; enter or modify leases; borrow money; make capital improvements; settle claims; sell property; or exercise other significant powers.

The choices are not always “receiver” or “no receiver.” A borrower that cannot prevent appointment may still have substantial grounds to contest the scope of the receiver’s authority.

Appointment Can Be Appealed Immediately

Texas Civil Practice and Remedies Code § 51.014(a)(1) authorizes an interlocutory appeal from an order that appoints a receiver or trustee. That is significant because most interlocutory orders cannot immediately be appealed.

Whether an appeal makes strategic sense depends on the record, cost, timing, scope of the order, ongoing foreclosure proceedings, and the borrower’s broader workout strategy. But the option should be evaluated immediately because appellate deadlines continue to run while workout discussions proceed.

A Receivership Changes the Negotiating Table

Receivership is not merely a procedural remedy. It changes leverage.

Before receivership, the borrower may control operations and cash flow while negotiating a modification, refinance, sale, deed in lieu, discounted payoff, or other workout. After appointment, the borrower may no longer control the rents, and its ability to fund improvements or execute a turnaround plan may become constrained.

Sometimes the right strategy is to defeat appointment. Sometimes it is to narrow the receiver’s authority. Sometimes the hearing creates an opportunity to negotiate protections that address legitimate concerns about the collateral without transferring complete operational control.

The Borrower’s Immediate Checklist

1. What exactly is the alleged default? Compare the notice to the actual loan documents.
2. What does the receivership provision say? Determine what the parties contractually agreed to.
3. Is the property actually endangered? Separate genuine threats to the collateral from ordinary financial distress.
4. What is the property worth? Identify and challenge the lender’s valuation evidence when appropriate.
5. What funds does the lender already control? Identify reserves, escrows, lockbox funds, and insurance proceeds.
6. Where have the rents gone? Create the documentary record showing legitimate property expenditures.
7. Were the notice and bond requirements satisfied?
8. How broad is the proposed receivership order? Contest powers unnecessary to protect the collateral.
9. What is the appellate deadline?
10. What is the endgame? Treat the receivership as one component of the larger enforcement and workout strategy.

The Takeaway

A receiver can change a commercial real estate dispute overnight. The lender may go from demanding payment to asking a court to place the property’s operations and revenue in someone else’s hands.

Texas law provides lenders with a receivership remedy, and contractual receivership provisions can materially strengthen a lender’s position. But appointment remains a judicial act governed by the statute, equitable principles, procedural rules, the loan documents, and the evidentiary record.

The worst response is to treat the hearing as a foregone conclusion simply because the loan is in default. The better response is to determine precisely what the lender is relying upon, understand what the parties actually agreed to, build the evidentiary record quickly, scrutinize the proposed receiver’s powers, and fit the receivership fight into the larger strategy.

Because by the time the receiver has the keys, the bank accounts, and the rents, the strategic landscape has already changed.

Next in the Distressed Commercial Loan series: Your Lender Has $500,000 of Your Money. Can It Still Declare You in Default? We will examine repair reserves, replacement reserves, escrows, cash-management accounts, insurance proceeds, and other borrower funds controlled by commercial lenders.

Related reading: Bad Boy Guaranty Defense: A Five-Part Guide for Commercial Real Estate Sponsors · What “Grossly Negligent Misapplication of Rents” Actually Requires Under New York Law · The Guarantor’s Defense: Workout Strategy Without Making It Worse

Matthew M. Clarke is a shareholder at Kelley Clarke, PC and Chair of Litigation. He represents borrowers, guarantors, sponsors, investors, and businesses in commercial real estate and lender-liability disputes. This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.