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Time to take a new look at Federal vs. State receiverships?

10 December 2020
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Most of the receiverships in the United States are state court receiverships. But lenders seeking the relief and protection of receiverships are giving new consideration to filing in federal court.
Our partner Nick De Lancie took the lead in putting together this summary of some key factors in making this choice today.

Time for a new look at
Federal vs. State Receiverships

Many state courts are closed or backlogged

Due to the Covid-19 crisis, getting receivers appointed in many state courts may be difficult. Some state courts are effectively closed, others are backlogged, and still others have temporary restrictions on receivership or foreclosures proceedings that push receivership applications even further down the stack.

Federal courts are generally open and working. Federal courts, however, have generally been proceeding with their cases in a more-or-less normal fashion. Even though federal courts do not have the quick receivership hearings that some states permit in ordinary times, federal receiverships, which are not commonly used by secured creditors, can be a very useful remedy for defaulted loans. This is particularly true even when state courts are fully “open for business” where the borrower’s operations and the creditor’s collateral are located in multiple states.

Similarities to state receiverships. Federal receiverships are similar to traditional state court receiverships but they have nationwide scope and may avoid many of the problems that arise from seeking and using multiple receivers, each from a court in a different state. They are historically recognized by federal law and are recognized and governed by the Federal Rules of Civil Procedure.

Like state court receivers, federal receivers are officers of the appointing United States district court. The district court may authorize a federal receiver to act across the entire United States, not just, as with state court receivers, within the state in which the receiver was appointed. Further, like many state court receivers, federal receivers may be authorized to sell receivership assets, thus avoiding the creditor having to take possession of the collateral or foreclose on it.

Other considerations about federal receiverships

Multi-state jurisdiction. Where there is operating real property collateral of a borrower or group of borrowers located in multiple states, a federal receivership may provide substantial legal, procedural, practical, and cost economies over multiple state court receiverships. Also, in a federal receivership proceeding, like in most state receivership proceedings, the petitioning creditor will have significant input into the court’s choice of the receiver.

Federal question or diversity required. But federal receiverships also have some limitations that state court receiverships do not have. Federal actions not based on federal rights require that there be complete “diversity” between the plaintiff creditor and the borrower/debtor defendant or defendants. Depending on the type of entities involved, this may be a hurdle to a federal receivership.

Grounds for appointment. Further, the grounds for appointment of a federal receiver are, generally, more limited than those for most state court receivers. The factors that typically warrant appointment of a federal receiver include the probability that fraudulent conduct has or will frustrate the creditor’s claim; the imminent danger the subject property will be concealed, lost, or diminished in value; the inadequacy of legal remedies; the lack of less drastic equitable remedies; and the likelihood that appointing a receiver will do more good than harm. Fraud, however, is not a required factor.

Receivership sales. Another big difference between federal and state court receivers is with respect to private sales of collateral. Federal law authorizes private receivership sales that are subject to court confirmation with three disinterested appraisals where the sale price is at least two-thirds of the appraised value and there is an opportunity for overbidding. However, even these requirements may, in the proper circumstances, be worked-around. Public receivership sales at auction, on the other hand, are very much the same as those of most states.

If you hold or service a loan with multi-state collateral and borrower operations, and are interested in learning more about how a federal receivership may provide a very useful and effective remedy instead of multiple state court receiverships, please contact the undersigned. Jeffer Mangels Butler & Mitchell LLP has significant experience in assisting creditors and servicers in these situations.

Troubled hotel and retail – forbearances, loan modifications, recapitalizations, receiverships, workouts, turnarounds, restructurings, and bankruptcies.

Our distressed assets team. We’ve been recognized internationally for the business and legal advice we provide to creditors dealing with distressed hotel, retail, retail chain and complex real estate assets. See our distressed loan credentials for more information.

Who we help. We assist banks, special servicers, and other financial institutions with all aspects of distressed projects, including forbearances, loan modifications, recapitalizations, receiverships, workouts, turnarounds, restructurings, and bankruptcies.

Wide-ranging experience. The size of the troubled loans we have worked on ranges from a few million dollars to billion-dollar properties and portfolios; as of April 21, 2020, we have been engaged on new distressed hotel and retail loans for two major lender/special servicers in excess of $1.2 billion.

For information, contact one of the senior members of the team, below.

Jim Butler

Nick De Lancie

Robert B. Kaplan

From our Global Hospitality Group® library of free resources, here are a few updated and classic articles on workouts, bankruptcies and receiverships:

Can SPEs be truly bankruptcy remote entities for hotel and resort loans?

Can a hotel ever be “single asset real estate” for bankruptcy purposes? What is “SARE” and who cares?

Workouts and Special Servicing for Hotel Mortgage Loans: What is so different about TROUBLED HOTEL LOANS?

Do you know the 8 Dos and Don’ts of handling troubled hotel mortgage loans?

The “Comprehensive Situation Analysis” for troubled hotel mortgage loans and workouts

Lender and borrower alternatives for troubled hotel mortgage loans

Butler’s Matrix: Key to hotel mortgage loan defaults, workouts, bankruptcies and receiverships.

Hotel bankruptcy? Distressed hotel loan mortgage? Restructuring hotel debt? Troubled hotel asset? How about an Enhanced Note Sale™?

Picture of Jim ButlerThis is Jim Butler, author of and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.

JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or to discuss how we can help.

Picture of Nicolas De Lancie

Nick De Lancie is a partner in JMBM’s Bankruptcy Group. His practice of 40 years has concentrated on commercial credit and commercial real estate finance transactions, and on creditors’ rights and bankruptcy matters.

Nick has significant experience in commercial and real estate finance and related areas, including loan structuring and documentation; loan syndications and participations; CMBS special servicing and other asset securitization matters (Regulation RR); hotel financings; mutual funds liquidity facilities; ESOP loans; power generation project financing; probate estate and trust matters; merchant bank credit card matters; loan sales and other secondary market transactions; forward purchase agreements, interest rate, and other derivative transactions; troubled commercial credit, commercial real estate loan, public finance, and distressed debt investment transactions; collection litigation; bankruptcy cases, and relief from stay, cash collateral, post-petition lending, plan confirmation, and appeals; and lender liability defense. For more information, please contact Nick De Lancie at 415.984.9675 or at

Picture of Robert Kaplan Robert Kaplan is a partner in JMBM’s Bankruptcy Group which is recognized by U.S. News & World Report / Best Law Firms® with a Metropolitan First-Tier Ranking (San Francisco) for Bankruptcy Litigation and Bankruptcy and Creditor Rights/Insolvency and Reorganization Law.

Bob represents lenders, special servicers, hard money lenders, community banks, national banking associations, distressed debt investors, and equity investors, positioning them for the best possible outcome by acting expeditiously to preserve value and increase cash flow. His industry experience and his knowledge of the current capital markets — where distressed assets often include complex deal structures and securitized loans — allows him to bring creative and effective strategies to the table. When aggressive litigation is the best strategy, he is a vigorous and effective advocate for his clients. For more information, please contact Robert Kaplan at 415.984.9673 or at

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