From Receivership to Refi: Legal Steps to Package Distressed Assets for Private Capital

An attorney-centric roadmap for turning court-controlled headaches into lender-ready, cash-flowing real estate—without waiting on a bank committee.

1 | Receivership 101—Why Private Capital Loves (the Right) Distress

Item Conventional Lender View Private-Capital View
Court Control “Come back after final disposition.” ✔ Predictable timeline & reporting.
Deferred Maintenance Collateral downgrade. Renovation upside = higher IRR.
Sponsor Default Automatic loan kill. New sponsor can step in via stalking-horse or note purchase.

Key Insight: Private lenders and equity funds want sub-performing assets—if the legal packaging is tight enough to close inside 30 days.

2 | Legal Preparation Timeline (30-Day Fast Track)

Day Action Deliverable for Lender
0-5 Confirm Receiver Authority—review order for sale or refinance powers. Court order & bonding proof.
5-10 Title & Lien Sweep—run updated title, clear mechanic’s liens via stipulation. Clean title commitment (or mapped exceptions).
10-14 Entity Readiness—form NewCo (take-out borrower), draft assignment of purchase & sale. EIN, operating agreement, K-1 structure.
14-18 Collateral Audit—environmental reliance letter, updated rent roll, cap-ex schedule. One-stop “Due-Diligence Binder” PDF.
18-24 Court Motion to Approve Sale / Refi—file, notice parties, set hearing. Draft order approving financing & lien priority.
25-28 Loan Docs Circulate—receiver, lender, and NewCo sign; file motion order. Executed commitment & pro-forma ALTA.
30 Funding & Recordation—receiver conveys or pledges asset; private loan funds. First-lien deed of trust + payoff of existing note.

3 | Document Checklist—What Every Private Lender (👋) Expects

Category Must-Haves Attorney Tips
Court Filings Original receivership order; motion & order approving disposition; bond. Ensure explicit language authorizing new debt at closing.
Title & Survey 60-day title commitment; plat or ALTA survey; lien-release affidavits. Request gap insurance endorsement to cover post-petition liens.
Environmental Phase I within 150 days (Phase II if REC flagged); reliance letter to lender. Courts almost always grant reliance authority—ask early.
Financials 12-month receiver P&L; rent roll; cap-ex ledger. Label receiver vs. pre-receivership expenses for clarity.
Entity & Authority NewCo LLC docs; certificates of authority; receiver joinder. Draft receiver estoppel stating no further claims against asset after closing.

4 | Structuring the Capital Stack

Layer Typical Terms (LoanFunders.com Network) Legal Considerations
Senior Bridge Loan 70–80 % of “as-is” value, 12–24 mo I/O, non-recourse Deed of trust + assignment of rents; receiver released at funding.
Preferred Equity / Gap 10–20 % of cost, 10–12 % coupon + accrual Intercreditor: cure rights, standstill, step-in.
Sponsor Equity 5–15 % last-loss cash Operating agreement shows preferred return waterfall.

Attorneys who deliver a clean intercreditor and estoppel shorten funding by 7–10 days—often the edge that wins your client the deal.

5 | Exit Strategy—From Bridge to Agency/DSCR Refi

  1. Stabilize NOI—receiver P&L shows trend, but pro-forma must pencil to ≥1.20 DSCR.
  2. Receiver Discharge—file notice of completion; court closes case.
  3. Clean Title UCC—terminate receiver’s UCC financing statements.
  4. Permanent Loan Closing—LoanFunders.com can roll bridge file into DSCR or agency take-out with minimal re-docs.

6 | Common Legal Pitfalls (and Fixes)

Pitfall Impact Fix
Receiver lacks power to encumber Lender declines File nunc pro tunc order clarifying authority.
Undisclosed tax liens surface at closing Title exception → delay Bond receiver or escrow payoff from proceeds.
Mech-lien cloud over post-petition work Title won’t insure Court-ordered lien bar; carve escrow.
Environmental reliance denied Lender orders new Phase I → 30 day slip Motion for reliance; receiver indemnity.

7 | Case Study—$12 M Chicago Hotel to Multifamily Conversion

  • Problem: COVID-era CMBS default, court receiver in place, 65 % occupancy.
  • Solution: Attorney packaged full doc set in 23 days; LoanFunders.com funded $8 M bridge + $2 M pref.
  • Outcome: Receiver discharged at closing, sponsor began gut-renovation; DSCR refi scheduled month 18.
  • Legal Fee: $148 K vs. $90 K projected—client happy to pay premium for speed that saved deal.

8 | Attorney Action Plan—Week-One Checklist

  1. 🔲 Read receiver order—highlight financing powers.
  2. 🔲 Order title & Phase I the same day.
  3. 🔲 Draft motion language now, not when lender commits.
  4. 🔲 Build one PDF binder—lenders hate Dropbox chaos.
  5. 🔲 Introduce lender to receiver’s counsel on day 3.

Need a Bridge Term Sheet for Your Receivership File?

Email the order and rent roll—LoanFunders.com returns a non-binding quote in 24 hours and our counsel coordinates document language with yours.

When the court clock is ticking, close with capital that moves at the speed of your pleadings.