Rent Receivers in a New York Foreclosure

Yes, if the mortgage provides for it, and New York makes that easy. A mortgage covenant entitling the holder to a receiver is read as entitling the lender, in a foreclosure, to a receiver of the rents and profits without notice and without regard to whether the property is enough security (Real Property Law 254(10)). The receiver collects the rents under court supervision, must account for them, and is paid a commission of up to 5% (CPLR 8004).

This page explains New York law for rental and commercial buildings in foreclosure. For an owner, a rent receiver means losing control of the building's cash and operations while the case is still pending; for a lender, it protects the collateral and the income stream. KOR Law LLP's debtor and creditor practice represents owners, guarantors and lenders on receivership motions. The foreclosure itself is part of the firm's foreclosure and real estate litigation practice.

How does a rent receiver get appointed, step by step?

The mortgage clause. The lender points to the mortgage's receiver covenant. Under Real Property Law 254(10), a covenant that the holder, in any action to foreclose, "shall be entitled to the appointment of a receiver" means a receiver of the rents and profits without notice and without regard to the adequacy of the security, and the rents are assigned to the lender as further security on a default.
The motion. In the foreclosure action, the lender applies for the appointment. Where the mortgage provides that a receiver may be appointed without notice, no notice of the motion is required (RPAPL 1325(1)).
Qualifying. A temporary receiver must take an oath to discharge the trust faithfully and fairly, unless all parties waive it, and must give an undertaking in an amount the court fixes (CPLR 6402, 6403).
Security deposits. The appointing order must direct the owner or lessee to turn over all tenant security deposits to the receiver, who holds them subject to a later court order (RPAPL 1325(2-a); General Obligations Law 7-105). The general deposit rules are in a New York landlord's security deposit obligations.
Collecting and spending. The receiver collects the rents and pays the building's taxes, expenses and fees. In New York City, a receiver of a multiple dwelling must register with the required municipal departments and give priority to correcting immediately hazardous and hazardous housing violations (RPAPL 1325(3)).
Accounting. The receiver keeps written accounts of receipts and expenditures, open to inspection by anyone with an apparent interest, and the court can order the accounts presented (CPLR 6404).
The end of the case. After the sale, money the receiver still holds, after fees and expenses, goes to the lender up to the amount by which the judgment exceeds the sale price, whether or not a deficiency judgment is sought (RPAPL 1371(4)).

Rent receivers in a New York foreclosure: who does what
Issue	Rule	Source
Right to a receiver	Mortgage covenant read as a right to a receiver of rents, without notice and regardless of adequacy of security	Real Property Law 254(10)
Notice of motion	Not required if the mortgage allows appointment without notice	RPAPL 1325(1)
Paying interest from rents during the case	Only if no answer contests the mortgage's validity, the amount due, a prior lien or a tender, or otherwise the lender's right to judgment	RPAPL 1325(2)
Security deposits	Turned over to the receiver and held subject to court order	RPAPL 1325(2-a); GOL 7-105
New York City multiple dwellings	Register; prioritize hazardous violations	RPAPL 1325(3)
Commission	Up to 5% of sums received and disbursed, as the court allows	CPLR 8004(a)
Removal	The appointing court may remove the receiver at any time	CPLR 6405
Leftover funds after sale	Paid to the lender up to the shortfall	RPAPL 1371(4)

Can rents be used to pay the lender during the case?

Only in a narrow situation. The court may direct the receiver to apply rents toward accrued interest on the mortgage while the action is pending, but only on proof that no answer has been interposed affecting the validity of the mortgage or the amount due, asserting a prior lien or a tender of payment, or otherwise affecting the lender's right to judgment and the amount it claims; taxes, administration expenses, fees and a court-set reserve must be provided for first, and anything paid is deducted from the judgment (RPAPL 1325(2)). The practical point for owners: an answer that genuinely contests the amount or the lender's right to foreclose also keeps the rents from being paid over as interest during the case. How to answer is covered in how long you have to answer a foreclosure complaint in New York, and what has to go in the answer.

What if the mortgage has no receiver clause?

A lender can still ask for a temporary receiver under the general rule, but it must show a reason: a temporary receiver may be appointed where there is danger that the property will be removed from the state, or lost, materially injured or destroyed (CPLR 6401(a)). That is a harder showing than pointing to a mortgage covenant, so the first document to read is the mortgage.

Receivers also appear outside foreclosures. A judgment creditor can ask the court to appoint a receiver to collect a judgment from a debtor's property or business income, under a different statute with its own standards; see when a New York court can appoint a receiver to collect a judgment.

What can an owner do once a receiver is appointed?

Check the order's scope. The court sets the receiver's powers and may extend or limit them on motion (CPLR 6401(b)). A temporary receiver has no power to hire counsel unless the order expressly allows it.
Turn over what the order requires. Including tenant security deposits (RPAPL 1325(2-a)). Failing to comply with the deposit statute is a misdemeanor (General Obligations Law 7-105(3)).
Watch the accounts. Inspect them, and ask the court to require particular records or a presentation of accounts if needed (CPLR 6404).
Seek removal for cause. The appointing court may remove a receiver at any time on any party's motion (CPLR 6405).
Contest the commission. The 5% cap applies to sums received and disbursed, and the court decides what to allow (CPLR 8004(a)).
Keep defending the case. The receivership does not decide the foreclosure; the defenses and the timetable are in what happens after you are served with a foreclosure summons in New York.

What changes the answer?

The mortgage's wording. A receiver covenant triggers Real Property Law 254(10); a clause allowing appointment without notice removes the notice requirement (RPAPL 1325(1)).
Whether you answered and what the answer says. It controls whether rents can be applied to interest during the case (RPAPL 1325(2)).
The type of building. New York City multiple dwellings carry registration and violation-repair priorities (RPAPL 1325(3)). Other differences between commercial and residential foreclosures are in commercial or residential foreclosure: which protections apply to you.
How long the case lasts. The commission and expenses grow with the receivership, and if funds run out the court may make the party that sought the receiver pay the receiver's compensation (CPLR 8004(b)).
The sale result. Leftover receivership money reduces any shortfall (RPAPL 1371(4)); the deficiency rules are in whether a lender can get a deficiency judgment after a New York foreclosure sale.

For example: a receiver for a 20-unit building

For example, imagine a lender foreclosing on a 20-unit apartment building in the Bronx whose mortgage entitles it to a receiver without notice. (This is a made-up illustration, not a real client or result.) The court appoints a receiver on the lender's papers alone (RPAPL 1325(1)), and the order directs the owner to turn over the tenants' security deposits (RPAPL 1325(2-a)). Because the building is a multiple dwelling in New York City, the order also requires the receiver to register and to give priority to correcting hazardous violations (RPAPL 1325(3)).

The owner has answered, contesting the amount claimed, including default interest. Because of that answer, the lender cannot get an order applying the rents to accrued interest during the case (RPAPL 1325(2)). The owner reviews the receiver's monthly accounts (CPLR 6404). After the sale, the receiver's remaining funds, net of its commission and expenses, go toward the gap between the judgment and the sale price (RPAPL 1371(4); CPLR 8004).

Common mistakes

Not reading the mortgage clause. It decides whether notice is required and how easy the appointment is (Real Property Law 254(10); RPAPL 1325(1)).
Holding back security deposits. The order and the statute require turnover (RPAPL 1325(2-a); GOL 7-105).
Defaulting in the foreclosure. With no answer contesting the debt, rents can be applied to interest during the case (RPAPL 1325(2)).
Ignoring the accounts. They are the owner's main window into the building while the receiver runs it (CPLR 6404).
Forgetting the commission. Up to 5% of what passes through the receivership comes out of the building's money (CPLR 8004(a)).

What to do this week

Find the mortgage and any assignment of leases and rents, and mark the receiver clause.
Get a copy of the motion and any order appointing a receiver, and read the powers it grants.
Prepare a list of tenants, leases, rents and security deposits.
Make sure your answer, if one is due, raises every real dispute about the amount and the lender's right to foreclose.
Calendar a monthly review of the receiver's accounts.
Speak with a lawyer about the scope of the order and the case as a whole; the lender's broader options are in how a lender enforces a defaulted commercial loan in New York.

Frequently asked questions

Does the lender have to prove the building is at risk?

Not if the mortgage has the standard receiver covenant: the appointment is without regard to the adequacy of the security (Real Property Law 254(10)). Without such a covenant, a temporary receiver requires a danger of loss, removal, material injury or destruction (CPLR 6401(a)).

Can I be appointed receiver of my own building?

The court chooses the receiver and sets the terms. The statutes cited here do not give an owner a right to serve, and the receiver must take an oath and give an undertaking (CPLR 6402, 6403).

Who pays the receiver?

The receiver's commission, up to 5%, comes from the sums it receives and disburses (CPLR 8004(a)). If the receivership ends with no funds, the court may fix the receiver's compensation and direct the party that moved for the appointment to pay it (CPLR 8004(b)).

What happens to the receiver's money if the foreclosure is dismissed?

The receivership is supervised by the court that appointed it, and a temporary receivership does not continue after final judgment unless the court directs otherwise (CPLR 6401(c)). What happens to the funds is decided by court order, so raise it with the court as soon as the dismissal is granted.

Does a receiver change the tenants' leases?

No statute cited here changes the leases. What changes is who collects the rents and runs the building during the case, under the court's order (Real Property Law 254(10); RPAPL 1325).

Is this the same as a lender taking the rents under an assignment of rents?

They are related. Real Property Law 254(10) treats the rents as assigned to the lender as further security on a default, and RPAPL 1371(4) sends leftover money held by a receiver, a mortgagee in possession or an assignee of rents toward any shortfall after the sale.

This page explains New York law in general terms. It is not legal advice and does not create an attorney-client relationship. Every case turns on its own facts and documents, and no particular outcome can be promised.

Can a lender take over a building's rents with a receiver during a New York foreclosure?