UNDERWRITING AND CLOSING A RECEIVERSHIP

UNDERWRITING AND CLOSING A RECEIVERSHIP

2016 Texas Land Title Institute

Wade A. Thunhorst Associate General Counsel

Title Resources Guaranty Company Dallas, Texas

WADE A. THUNHORST Title Resources Guaranty Company

8111 LBJ Freeway, Suite 1200 Dallas, Texas 75251

800-526-8018 [email protected]

Current Position: Wade is Associate General Counsel of Title Resources Guaranty Company, where he has worked since 2006. His principal responsibility is addressing underwriting inquiries from title agents, primarily in Texas. He also prepares and presents webinars for title agents, and often presents MCE cources to real estate brokers and agents. Education: VANDERBILT UNIVERSITY – School of Law, Nashville, TN; J.D., 1982. Order of the Coif RUTGERS UNIVERSITY – Rutgers College, New Brunswick, NJ; B.A., 1978. Professional Background: Commercial Recovery Systems, Inc. (Dallas), General Counsel and CFO, 1994-2006 First Southwestern Title Group (Houston), Vice President and General Counsel, 1989-1994 Attorney in private commercial real estate practice (Houston), 1982-1988 Member of Texas Bar since 1982 Texas Real Estate Commission: Certified MCE instructor Texas Land Title Association: G. Gordon Smith Award, 1990 Publications: Title Insurance Endorsements Update, 2014 University of Texas Mortgage Lending Institute How to Address Attorney Objection Letters, 2014 TLTA South Texas Seminar Correction Instruments, 2014 TLTA South Texas Seminar Contributing Editor, Asset Protection Planning, 2nd Ed. (1998), 3rd Ed. (2000),

Practitioners Publishing Company Community:

Prestonwood North Homeowners’ Association (Dallas): Past President and V.P. First United Methodist Church of Richardson: Board of Trustees (2006-09) Weekday Kids at First (Richardson): Incorporator and initial Director Westbury Civic Club (Houston): Director for Deed Restrictions (1989-92)

1 2016 Texas Land Title Institute Underwriting and Closing a Receivership


As the above title may suggest, this article is designed to address sales out of receiverships

from a title insurance perspective. It is intended to address various examination, closing and

underwriting requirements for insuring sales of real estate from court appointed receivers to

arms‐length third party purchasers. For the practitioner representing a receiver, it includes some

suggestions as to language in receivership documentation that may facilitate approval of a

transaction by a title insurance company. For the practitioner representing a purchaser from a

receiver, the author hopes that this article will provide some insight as to the overall process.

The article will not address receiverships insofar as they relate to personal property.

Concept

A “receiver” is an impartial person appointed by a court to receive and preserve property

or funds during litigation before the court. Kokernot v. Roos, 189 S.W. 505 (Tex. Civ. App.‐San

Antonio 1916). A “receivership” is a proceeding in that lawsuit pursuant to which the receiver is

appointed. A receiver is an instrumentality of the court concerning property in receivership,

holding possession of property for the court that appointed the receiver. First Southern

Properties, Inc. v. Vallone, 533 S.W.2d 339 (Tex. 1976). The receiver is a disinterested party, who

is obligated to represent and protect the interests of all persons with an interest in the subject

property. Security Trust Co. of Austin v. Lipscomb County, 142 Tex. 572, 180 S.W. 2d 151 (1944).

The receiver has only so much power and authority as given by the court. Davis v. Gray 83 U.S.

203 (1872). There are numerous cases which hold that a receivership is an unusually harsh

remedy, and should be used only as a last resort. See, e.g., In re Marriage of Edwards, 79 S.W.3d

88 (Tex. App.‐Texarkana 2002). However, in recent years we have been seeing increasing

numbers of sales by receivers.

Contexts in Which Receiverships Are Encountered

Receiverships are encountered most frequently in the following types of transactions:

‐ A sale of a home by divorcing couple. In some cases, a sale of the marital home is

clearly necessary, but the couple is unable to agree upon the terms. In some cases,

one of the parties simply refuses to cooperate in the execution of the necessary


documents to effectuate the sale. One of the parties asks the court to appoint a

receiver and to give the receiver the power and authority to deal with the property.

‐ A sale of property seized to help satisfy a judgment. A judgment debtor owns property

that the creditor is unable to levy upon for some reason. The creditor asks the court

to appoint a receiver to take possession of the property, sell it, and ultimately pay the

proceeds to the creditor.

‐ Defaulted mortgages. In certain circumstances, a lender may not be able to, or wish

to, utilize the traditional nonjudicial foreclosure process. A receivership is an

alternative way of having the property sold and the proceeds applied toward the

satisfaction of the debt.

‐ Where the person in title cannot be located. For example, if there is an heir in title

who has been identified but cannot be found, a receivership can be established to

facilitate the sale of the property.

‐ Sale of property previously owned by a failed financial institution. A bank or similar

institution fails, and its assets are taken over by a regulatory agency, such as the

Federal Deposit Insurance Corporation. Acting in its capacity as receiver for the failed

institution, the FDIC sells the assets of the institution, including real estate that the

institution has foreclosed on. These types of receiverships are subject to some special

regulations, and are beyond the scope of this article.

Other, less common, situations in which receiverships may be encountered include:

‐ Sales by entities in which the control of the entity has been in dispute.

‐ Religious organizations, where control of the property is disputed.

‐ Actions to vacate fraudulent purchases of property.

‐ Mineral interests, where ownership is uncertain.

‐ Homeowner associations, in certain states.


Governing Texas Statutes

The principal legal authority governing receiverships in Texas is Chapter 64 of the Texas

Civil Practices and Remedies Code (“CPRC”). It applies to all receiverships. Section 64.001 of

the CPRC states that a court of competent jurisdiction may appoint a receiver:

(1) In an action by a vendor to vacate a fraudulent purchase of property;

(2) In an action by a creditor to subject any property or fund to his claim;

(3) In an action between partners or others jointly owning or interested in any property or

fund;

(4) In an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged

property;

(5) For a corporation that is insolvent . . . or has forfeited its corporate rights; and

(6) In any other case in which a receiver may be appointed under the rules of equity.

Under the first three scenarios, a receiver may be appointed at the request of a party with a

probable interest in property that is in danger of being lost, removed, or materially injured.

CPRC §64.001(b). For mortgage foreclosures, the court may appoint a receiver only if it appears

that the mortgaged property is in danger of being lost, removed or materially injured, or if the

mortgage is in default and it is likely that the value of the property is insufficient to discharge

the mortgage. CPRC §64.001(c). In situations involving missing persons, a probate court or court

with family law jurisdiction may appoint a receiver at the request of an interested person, or on

its own motion, if it appears that the estate of the missing person is in danger of injury, loss or

waste and such estate is in need of a representative. CPRC §64.001(d).

In a divorce context, provisions of the Texas Family Code also come into play. Section

6.502(a)(5) authorizes the court to appoint a receiver during the pendency of the suit for the

preservation and protection of the property of the parties. Section 6.709(a)(3) authorizes such

an appointment during the pendency of an appeal.

In the collections context, CPRC §31.002(a)(3) applies. It authorizes the court to appoint a

receiver to take possession of non‐exempt property, sell it, and pay the proceeds to the judgment

creditor to the extent required to satisfy the judgment.

In the context of missing persons, CPRC §§ 64.101–108 are applicable. The court issues a

citation to all persons interested in the welfare of the missing person, which is published in a

newspaper of general circulation. Such persons are given the opportunity to appear in court and

contest the application for the receivership. CPRC §64.101. The court is required to appoint an


attorney ad litum to represent the interests of the missing person. CPRC §64.102(a). It may

appoint a guardian ad litum for the missing person. CPRC §64.102(b). The term of such a

receivership may not exceed six months without good cause for a six month extension. CPRC

§64.102(e).

Receiverships for mineral interests are governed by Sections 64.091 through 64.093 of

the CPRC. They are mentioned here for reference, but not discussed at length, because they

usually do not come into play in title insured transactions. Receiverships for financial institutions

are governed by Chapter 36 of the Texas Finance Code. Receiverships of insurance companies

are governed by Chapter 443 of the Texas Insurance Code. Again, these provisions will not be

addressed in this article.

Governing Federal Statutes

Federal law does not contain a comprehensive statute similar to CPRC Chapter 64.

However, for receiverships created by federal courts, there are several governing statutes. With

respect to the appointment of the receiver, 28 USC §754 authorizes the appointment of a

receiver to take possession and control of property located in multiple judicial districts. 28 USC

§1692 provides that process may issue and be executed in any such district, but that orders

affecting the property must be entered of record in each of such districts.

With respect to the sale of the property, 28 USC §2001(a) addresses the location of the

sale. 28 USC §2001(b) requires an appraisal of the property. 28 USC §2002 governs the notice

of the sale that must be given.

Appointment Procedures

In certain circumstances, a court may appoint a receiver upon its own motion. However,

the overwhelming majority of receiverships are commenced by a party to the lawsuit filing an

application with the court for the establishment of the receivership.

The very first words of CPRC Chapter 64 are “A court of competent jurisdiction may

appoint a receiver . . . .” Thus, the court must have subject matter jurisdiction over the

underlying cause of action. In most title insured transactions, this will not be an issue, as any

defect in jurisdiction is likely to be raised and resolved prior to any sale of property. All District

Courts in Texas have jurisdiction over real estate (Texas Constitution, Article V, Section 8), so


jurisdiction will not be a problem if the case in a District Court. Most County Courts at Law,

including Probate Courts and Family Law Courts, also have jurisdiction over real estate.

The one situation in which subject matter jurisdiction may be an issue is if the receiver is

appointed by a Justice of the Peace, in a case heard in Justice Court. A Justice Court does not

have jurisdiction in a “suit for trial of title to land” (Texas Government Code §27.031(b)(4)) or in

a suit “for the enforcement of a lien on land” (Texas Government Code §27.031(b)(5)). This

situation is most likely to arise in a judgment enforcement action. There is disagreement among

lawyers as to whether or not these limitations prohibit a Justice Court from appointing a receiver

who will seize and sell real property of the judgment debtor.

If the receivership is created by a federal court, the basis for subject matter jurisdiction

must be established. This will either be because the suit involves an issue of federal law or there

is diversity of citizenship. Again, any challenge to subject matter jurisdiction is likely to be

resolved prior to receiving an order for title insurance.

In the typical case, the property in question will be located in the federal district in which

the suit has been filed. However, as noted above, 28 USC §754 does authorize the appointment

of a receiver with control of property in other districts. The receiver is required to file copies of

the complaint and order of appointment in the district court for each district in which property

is located. This author recommends recording certified copies of such copies in the real property

records.

The other essential element of jurisdiction is personal jurisdiction over all parties affected

by the appointment of the receiver. All such parties must be named as defendants in the lawsuit,

and must have been served with process. As in all lawsuits involving title to real property, the

interest of a person who is not properly before the court is not affected by the actions of the

receiver.

The title examiner should identify all parties with an interest in the property at the time

the lawsuit was filed. The examiner also should review the court docket to verify that all of such

parties were personally served with process, or waived service by appearing in the lawsuit. If

service was made through substitute service or by publication, there is a strong risk of any

judgment against the party being overturned in the future by a Bill of Review. Absent fraud, the

statute of limitations for filing a Bill of Review is four years from the date of the entry of the

judgment. Layton v. Nationsbanc Mortg. Corp. 141, S.W.3d 760 (Tex. App.‐Corpus Christi‐

Edinburg 2004, no pet.)

Texas Rule of Civil Procedure ("TRCP") 695 provides that, except where otherwise

provided by statute, no receiver shall be appointed without notice if the property is “fixed or


immovable”. By definition, all real property is "fixed and immovable". Accordingly an ex parte

appointment of a receiver to sell real property will never be acceptable for title insurance

purposes, and the law governing ex parte appointments is not addressed in this article. The

court is required to schedule a hearing and notice of the hearing must be given to the adverse

party at least three days prior thereto.

TRCP 695 does provide flexibility for notice to nonresident defendants or defendants that

cannot be located, allowing notice to be affixed in "a conspicuous manner and place upon the

property," or in a manner determined by the court. However, the concerns discussed above

regarding substituted service and service by publication come into play. It is unlikely that title

will be insurable without proof of delivery of actual notice of the hearing to the adverse party.

Parties with an interest in the property include lienholders, so notice of the receivership

application must be given to all parties with liens on the property. Independent American Savings

Association v. Preston 1771 Joint Venture, 753 S.W.2d 749 (Tex. App.‐ Dallas 1988, no writ).

Presumably, this principle applies to involuntary lienholders as well as mortgage lenders.

Qualifications of Receivers

In order to qualify for an appointment as a receiver, a person must be a citizen of Texas

and a qualified voter, and may not be a party, attorney or other person with an interest in the

case. CPRC §64.021(a). The appointment of a receiver who does not meet these requirements is

void as to any property disposed of by the receiver. The extent to which a title company needs

to verify the qualifications of the receiver is a matter of underwriting discretion.

The receiver must maintain an actual residence in Texas during the duration of the

receivership. CPRC § 64.021(c). The receiver is required to take an oath to perform his or her

duties faithfully. CPRC §64.022.

The receiver is also required to post a bond in amount set by the court. CPRC §64.023;

TRCP 695a also addresses the bond requirements. The amount is supposed to be sufficient to

cover all probable damages and costs that the defendant may suffer if it is determined that the

receiver was wrongfully appointed. The bond is payable to the defendant. However, a bond is

not required in certain receiverships involving mineral interests. CPRC § 64.091(4)(5).

Additionally, in a divorce case, the court has the discretion to not require the bond. TCRP 695a.

Objections to and Removal of Receivers


After the receiver has been appointed, a party may file a motion to vacate the

appointment with the court that made the appointment. The motion must be based upon some

new information previously unknown to the court, or upon a fundamental error in the

appointment that renders the appointment void. Couch Mortgage Co. v. Roberts, 544 S.W.2d

944 (Tex. App. – Houston [1st Dist.] 1976, writ dismissed).

The appointment of a receiver is an interlocutory order. A party to the suit has the right

to appeal such order to the applicable court of appeals. CPRC § 51.014(a)(1). Any such appeal

must be filed within twenty days of the date of the appointment of the receiver. Long v. Spencer,

137 S.W.3d 923 (Tex. App.‐Dallas 2004, no writ). In the divorce context, Texas Family Code

§6.507 also authorizes such an interlocutory appeal.

There is no corresponding statutory authority to appeal an interlocutory order denying

the appointment of a receiver. The receiver himself or herself is not a party to the lawsuit, and

thus has no standing to appeal any order pertaining to the receivership. Wiley v. Sclafani, 943

S.W.2d 107 (Tex. App. – Houston [1st Dist.] 1993, no writ).

Powers and Duties of Receivers

Subject to the control of the court, a receiver may (i) take possession of property, (ii)

receive rents, (iii) collect and compromise demands, (iv) make transfers, and (v) perform other

acts in regard to property as authorized by the court. CPRC §64.031. Note that the statute uses

the language “subject to the control of the court” and “as authorized by the court”. A receiver

does not have unilateral authority to act by virtue of his or her appointment. However, a receiver

may bring a lawsuit in his or her official capacity without court approval. CPRC §64.033.

If the property in the receivership is income producing, the receiver distributes such

earnings in accordance with the priority scheme set forth in CPRC § 64.051, which is:

1. Court costs;

2. Wages of employees due by the receiver;

3. Debts for materials and supplies used for the improvement of the property;

4. Debts for improvements made to the property;

5. Contractual and certain tort claims against the receiver; and

6. Judgments recovered in suits brought before the receiver was appointed.

A receiver may be sued in his or her official capacity without the approval of the

appointing court. CPRC §64.052. The appointing court is required to order that any judgment


against the receiver be paid from funds held by the receiver. CPRC §64.053. A judgment against

a receiver is a lien on all property held by the receiver. CPRC §64.054. A person to whom a

receiver transfers property accepts the property subject to the liabilities of the receiver in that

receiver’s official capacity. CPRC § 64.056.

Procedures for Sales of Real Property

As noted above, receivers are subject to the control of the court. The sale of property in

a receivership is not effective until such sale has been reported by the receiver to the court and

confirmed by the court. Baumgarten v. Frost, 143 Tex. 533, 186 S.W.2d 982 (1945).

The applicable procedures for a sale by a receiver are similar to those of a sale by a

dependent administrator in a probate case. This is commonly known as the “Texas four step

process.”

Step 1: Application for Sale. The receiver files a motion with the court asking for approval

to sell the property. In this context, “sell” and “sale” refer to entering into a contract, not to the

conveyance of the property. The Application for Sale is the request to market the property.

Step 2: Order of Sale. If the court agrees that the property should be sold, it enters an

Order of Sale. The Order of Sale is the court’s permission for the receiver to negotiate contracts

for the sale and eventual conveyance of the property.

Step 3: Report of Sale: After the receiver has found a buyer, the receiver submits the

contract to the court, via a formal report, and asks the court to confirm the sale.

Step 4: Confirmation of Sale: If the court is satisfied that the contract for the disposition

of the property is in the best interests of the parties, the court approves the transaction by issuing

a Decree Confirming Sale, Order of Confirmation, or similarly entitled order. The Confirmation

of Sale is what the title company needs in order to close and fund the transaction.

The traditional application of the Texas four step process contemplates the issuance of

the Confirmation of Sale prior to the closing. However, in certain locations and situations, the

term “sale” is interpreted to mean the actual conveyance by execution of the deed, not the

execution of the earnest money contract. The court may require the closing documents to be

signed and the proceeds held at the title company before issuing the Confirmation of Sale. If that

is the case, your underwriter should be consulted to determine whether or not it is acceptable

to have the closing documents signed and held in escrow prior to the confirmation of sale. If so,

both the receiver and the buyer should execute a formal agreement in which the acknowledge


that they have closed into escrow, and that the transaction will not be “closed” until the

Confirmation of Sale has been issued by the court, in form and substance acceptable to the title

company. Once the Confirmation of Sale has been issued, the title company is then instructed

to to record the documents and fund the transaction.

Because there will be lag time between the document execution and the issuance of the

Confirmation of Sale, title needs to be again checked prior to funding. The escrow agreement

should contain a provision addressing the possibility that something affecting title to the property

could be filed during this period.

In dependent administrations, the court documents evidencing the four steps are usually

clearly titled as such. That is not always the case with receiverships. Documentation may be

filed with the court that has the substantive effect of one or more of the four steps, but without

labeling the documents with the terms used above. This is particularly common for the

Application for Sale and Order of Sale. The author has seen a number of cases in which the

receiver and the court have treated the application for the receivership as the Application for

Sale, and the order appointing the receiver as the Order of Sale. Thus, it is often necessary to

review the motions filed with and the orders issued by the court in detail to determine whether

or not the substance of the steps is contained in the language of the documents.

The court's Confirmation of Sale cures all defects, mistakes, errors and irregularities in the

receivership proceedings, provided the court had jurisdiction and the sale is not subject to

collateral attack. Salaymeh v. Plaza Centro, LLC, 258 S.W.3d 236 (Tex. App.‐Houston [1st Dist.]

2008). Because of this principle, the title insurance underwriter may be willing to overlook

certain irregularities or sloppiness in the documentation of the first three steps. It is the

Confirmation of Sale that is absolutely essential to the insurability of the transaction. The

Confirmation of Sale brings the proceeds of the sale into the court in place of the property. Long

Island Machinery & Equipment Co. v. Baird, 117 S.W. 2d 565 (Tex. Civ. App.‐Galveston 1938, writ

dismissed).

Title Vesting and Conveyance Documentation

The appointment of a receiver generally does not vest title to the property in the name

of the receiver. Dallas Bank & Trust Co. v. Thompson 87 S.W.2d 307 (Tex. Civ. App.‐Dallas 1935).

It authorizes the receiver to act with respect to the property, but does not give the receiver a

personal interest in the property. Ordinarily, a receiver has temporary possession of the

property, but no title to it. Durham v. Scrivener 259 S.W. 606 (Tex. Civ. App.‐Austin 1923, aff’d.

270 S.W. 161, Tex. Comm’n. App. 1925). Of course, title would be “vested” in the receiver if the


order appointing the receiver contains specific language divesting the record owners and vesting

title in the receiver. Hovel v. Kaufman 280 S.W. 185 (Tex. Comm’n App. 1926). However, most

receivership orders do not contain such language.

All of that said, many parties to transactions look to paragraph 3 of Schedule A of the title

commitment to tell them who is supposed to sign the deed. The party with authority to sign the

deed is not always the party technically “vested” in title under the traditional meaning of the

term. Whether it is acceptable to show a duly appointed receiver as the party who “appears to

be vested” in title in paragraph 3 of Schedule A of the title commitment is an issue of underwriter

discretion and preference.

The proper naming of the grantor in the conveyance deed is important to insure a clear

record chain of title to the purchaser. For example, let’s assume that Harry Husband and Wendy

Wife own the property together and are getting a divorce. The court appoints Ronnie Receiver

as a receiver with authority to sell and convey the property, without the joinder of Harry or

Wendy on the deed. The four step process has been followed, and it is time to prepare the deed.

In this author’s opinion, the best way to name the “Grantor” in the deed, is “Ronnie Receiver,

Receiver in Cause No. 12345, in the 254th Family District Court of Dallas County, Texas, styled In

the Matter of the Marriage of Harry Husband and Wendy Wife”. Variations on this language are

acceptable, provided the names of the receiver, all parties in record title, and the identification

of the case are included. It is essential that future title examiners be able to “connect the dots”

from the parties in title, through the receiver, to the grantee. Inclusion of the court information

allows the examiner to verify the authority of the receiver to make the conveyance.

There are differences of opinion on the extent to which certified copies of the receivership

documents need to be recorded in the real property records. Because receiverships are

analogous to dependent administrations, some underwriters may require the recordation of the

Application, Report, Order and Confirmation of Sale. Some may require recording only the

Confirmation of Sale, and some may not require that any of the “four step” documents be

recorded. Some may prefer the attachment of a copy of the Confirmation of Sale to the Deed.

In this author’s opinion, if the deed includes the reference to the case number, and if the case

was filed in the county in which the property is located, it is not necessary to record any of the

court documents. Again, the reference to the case will allow future examiners to verify the

authority of the receiver to sign the deed. If property is located in a different county from the

court, the author recommends filing a certified copy of the Confirmation of Sale in the real

property records, immediately ahead of the deed.


In all cases, the deed should be custom drafted by an attorney. The practice of taking the

vesting language from the title commitment and inserting it verbatim into the deed typically will

not be acceptable.

For purposes of 1099 reporting and FIRPTA withholding, the “transferors” are the record

owners of the property, not the receiver.

Interests Affected by Sales by Receivers

A deed from a receiver conveys only such interest as the record title owners have at the

time of the appointment of the receiver. Cox v. Gutman, 575 S.W.2d 661 (Tex. App. – El Paso

1978, writ ref’d. n.r.e.) For example, if there is an underlying mortgage on the property, the

grantee takes subject to that mortgage, regardless of whether the deed expressly so states.

Edinburg Irr. Co. v. Paschen, 235 S.W. 1088 (Tex. Comm'n App. 1922).

What about interests that may arise after the appointment of the receiver but prior to

the conveyance? For example, in the hypothetical divorce of Harry Husband and Wendy Wife

described above, let’s say a federal tax lien is filed against Harry and Wendy after the

appointment of the receiver. Federal tax liens attach to all property and rights to property

belonging to the taxpayer. 26 U.SC. 6321. The divorcing couple still has rights to in the property,

because of their rights with respect to the net proceeds, so a release of the federal tax lien would

be necessary. Although other holders of involuntary liens, such as judgment lienholders, do not

have the same reach as the Internal Revenue Service, this author would require releases of any

such involuntary liens that arise between the appointment of the receiver and the conveyance

by the receiver. The couple typically will not technically be fully divested of title until the receiver

conveys the property to the purchaser.

What if a record owner subject to a receivership executes a deed to a third party after the

appointment of the receiver? Such a conveyance would be void, because no one has authority

to convey property held in custodia legis by a receiver without court approval. First Southern

Properties, Inc. v. Vallone 533 S.W. 2d 339 (Tex. 1976). That said, the deed would still cloud the

title to the property, and the cloud would need to be removed for the property to be insurable.

Thus, regardless of whether Schedule A shows title as appearing to be vested in the record owner

or in the receiver, it is necessary to conduct an name search on the record owners up to the date

of the conveyance. If the transaction closes into escrow pending the receipt of the Confirmation

of Sale, the search should go up to the date of funding, not just up to the date of the execution

of the documents.


It is also would be prudent to conduct a name search on the receiver. As noted above, a

judgment rendered against a receiver in the case is a lien on all property held by the receiver.

CPRC §64.054. A person to whom a receiver delivers property held in receivership is liable for

unpaid liabilities of the receiver arising during the receivership, to the extent of the value of the

property. CPRC §64.054. Of course, as with other fiduciaries such as executors and trustees, a

lien against a receiver personally, and not arising out of the receivership, will not attach to the

property held by the receiver in his or her fiduciary capacity.

Insuring Subsequent Transactions

This section addresses issues that may arise when there is a deed from a receiver in the

chain of title. Of course, the initial inquiry typically is whether the person offering title in your

transaction has an owner policy. One of the principal reasons is the applicability of the Texas

Master Indemnity Agreement (Form T‐29). If an underwriter that is a party to the Master

Indemnity Agreement has has issued an owner policy to a party currently in title (or a loan policy

to a lienholder that foreclosed and is in title), the underwriter is automatically obligated to

indemnify another underwriter who issues a policy against certain potential title defects.

The Texas Mater Indemnity Agreement (Form T‐29) covers questions regarding the

authority of certain fiduciaries. Paragraph IV states that it covers “Questions as to whether a

trustee or attorney in fact had proper authority to convey title to the Land to the current insured

or a predecessor in title.” Paragraph V provides that the Master Indemnity Agreement covers

“Questions as to the authority of an executor/executrix, or administrator/administratrix to

convey the title to the Land to the current insured owner or a predecessor in title.” The Master

Indemnity Agreement does not contain language stating that it is covers questions regarding the

authority of a receiver to convey property. Thus, although receivers are analogous to these

named fiduciaries in many respects, if the receiver did not have the proper authority to convey,

the owner policy that is issued to the purchaser does not automatically obligate the old

underwriter to indemnify the new underwriter.

In light of the inapplicability of the Master Indemnity, is it necessary to look behind an

owner policy to make an independent determination of the authority of the receiver to have

conveyed the property to your seller? This is a question of risk assessment. Examiners and closers

will need to know the policies of their underwriters on this issue.

What if a person acquired title from a receiver but did not receive an owner policy.

Uninsured transactions are risky in and of themselves, and the receivership element increases


the risk. This author recommends a thorough review of the receivership proceedings by an

underwriting attorney when faced with this situation.

The Texas Title Examination Standards (Texas Property Code – Appendix) do not address

receiverships or conveyances by receivers at all.

Special Comments Regarding Divorces

Receiverships created in divorce proceedings are becoming increasingly common. A court

with family law jurisdiction may appoint a receiver to take control of community or separate

property of the parties. Texas Family Code §6.502(a)(5); In re C.F.M., 360 S.W. 3d 654 (Tex. App.‐

Dallas 2012). The doctrine that there must not be a less harsh remedy is not as widely observed.

See, e.g. Norem v. Norem, 105 S.W.3d 213 (Tex. App.‐Dallas, 2003, no pet.)

The appointed receivers are often real estate agents selected by judge. Their

compensation may often be the standard real estate commission that would be payable upon

the sale of the property. The receiver is not likely to be represented by counsel. A real estate

agent who is not a regular appointee of the court may not be familiar with the requirements for

insuring sales discussed in this and other articles on the subject.

Often, the order appointing the receiver is incorporated in the final decree of divorce.

The extent to which the receiver’s powers are set forth in the order of appointment vary. Some

are quite specific about the power to execute deeds and other documents, while others more

generically grant the power to sell the property. In some cases, the order requires that the

divorcing parties execute the deed and related closing documents.

Unlike the in the typical receivership, the sales proceeds usually are not disbursed to the

receiver. The court will often specify the percentages of the net sales proceeds to be disbursed

directly to each divorcing party. Sometimes the court will order that the net proceeds be paid to

the registry of the court. Ideally, the Confirmation of Sale will include clear instructions to the

title company as to the required disposition of the funds, but such instruction may be in other

court orders. Absent such instructions, it may be necessary to ask the attorneys to obtain an

Agreed Order regarding the disposition of the funds.

In all closings, information from the parties in title is necessary to prepare 1099 forms,

clear involuntary liens against similar names, and clear various other Schedule C requirements.

In divorce receiverships, the closer often is not dealing directly with the divorcing individuals, so

this information often must be obtained from the attorneys for the parties.


It is recommended that drafts of closing statements be provided to the attorneys and to

the receiver as soon as possible. Disagreements over the details of who is supposed to be paid,

for what, and how much, are common. If such details cannot be resolved prior to closing, an

Agreed Order or Rule 11 Agreement authorizing the title company to pay the money into the

registry of the court is recommended.

As noted above, in some cases the court orders the divorcing parties to execute the

closing documents. Such a requirement is contrary to the general nature and purpose of

receiverships. Nonetheless, if this is the case, the receiver does not have the authority to sign

the deed alone, and the signatures of the husband and wife must be obtained.

Practice Tips to Satisfy the Title Company

This section is addressed to attorneys involved in the receivership process and to

receivers themselves. These practice tips are not hard and fast rules, but are suggestions to

increase the likelihood of approval of the receivership documentation by a title insurance

underwriter.

In the earnest money contract, it is important to include a provision stating that the

contract is contingent upon court approval. Failure to include such a provision could put the seller

in default if the four step process is not completed. Given the unpredictability of timing when

dealing with the court system, it may be difficult to pinpoint an exact closing date. A date that

is a certain number of days after the issuance of the Confirmation of Sale is one way to address

this issue. Of course, attorneys for purchasers will want to include an outside termination date.

In the application for the receivership, the author recommends that facts establishing the

jurisdiction of the court be specifically alleged. It also should include language showing that the

court has personal jurisdiction over the respondent. (e.g., “Respondent has appeared and filed

an Answer in this action”; “Respondent, although duly cited and served with process, has failed

to file an answer. The court has appointed Jane Doe as attorney ad litum for Respondent

herein.”) Additionally, a well drafted application should allege the specific facts establishing the

need for the receivership.

The language of the order appointing the receiver is particularly important. To start, the

author recommends that it state that the receiver is a citizen and qualified voter in Texas and is

not interested in the lawsuit. It should state the powers given to the receiver with language

sufficient to identify the property involved and sufficient to give the receiver full power and

control over the property.


At a minimum, the order should include language stating the receiver has the power to

“convey” the subject property, or to "execute a deed" to the property. A receiver is somewhat

analogous to an attorney‐in‐fact under a power of attorney. Under Texas law governing powers

of attorney, the power to “sell” land does not include the power to convey the property in an

exchange or a partition of lands. Frost v. Erath Cattle Co., 17 S.W. 52 (Tex. 1891.) The power to

“sell” also does not include the power to encumber. First Nat’l. Bank v. Blades 93 F.2d 154 (5th

Cir. 1937). The power to “sell” is often interpreted as being limited to the power to enter into

earnest money contracts. Thus, language such as “convey”, “execute deeds”, “execute all other

documents necessary or desirable to effectuate a transfer of title”, etc. is recommended.

Do not confuse the application for the appointment of the receiver with the Application

for Sale. The Application for sale is a separate document filed with the court after the receiver

has been appointed. Similarly, do not confuse the order appointing the receiver with the Order

of Sale. The Order of Sale is necessary to authorize the receiver to solicit offers for the property.

The Report of Sale typically will include a copy of the earnest money contract as an exhibit.

The terms of the sale must be in strict accordance with the contract. Last minute changes to the

deal which have not been confirmed by the court will not be acceptable.

As noted above, the Confirmation of Sale is the most important document. A well drafted

confirmation may resolve concerns about the content of the prior documents. Ideally, the

Confirmation will include a statement that the court has examined the Report of the Sale, and

finds that it conforms with the previous orders of the court (including the Order of Sale). It

should include a finding that the sale of the property is for a fair price. It will contain language to

the effect that upon payment of the contractual consideration, the receiver is directed to deliver

a deed to the purchaser. The Confirmation should contain both the name of the purchaser and

a description of the property. Of course, specific instructions as to the disposition of the proceeds

is also recommended.

Checklist of Underwriting Guidelines

Because of the variety of contexts in which receiverships arise, and because of the variety

of the level of risks that may be involved, many title companies do not have a standard list of

requirements for these transactions. With the disclaimer that there is no "one size fits all" list,

the following requirements are offered for consideration in many of the transactions that a title

company may be asked to insure:


‐ Confirmation that the court has subject matter jurisdiction to appoint the receiver.

‐ Verification that all parties with an interest in the property have been properly

named in the lawsuit and personally served with process.

‐ Verification that all parties with an interest in the property have been given proper

notice of all action taken with respect to the property.

‐ Verification that the owners have not been in the military within one year of the

date of the conveyance.

‐ Proof that the receiver posted the required bond.

‐ A copy of the order appointing the receiver.

‐ Verification that the order appointing the receiver has not been appealed within 20

days of its entry (30 days if in federal court).

‐ Copy of the Application for Sale.

‐ Copy of the Report of Sale.

‐ Copy of the Order of Sale.

‐ Copy of the Confirmation of Sale.

‐ Verification that the Confirmation of Sale has not been appealed within 30 days of

its entry, if the receivership was contested.

‐ Review and approval of the deed from the receiver to the purchaser.

‐ If the receivership is in a federal court and the property is located in a different

federal district, copies of each document affecting title, file stamped by the clerk of

the district in which the property is located.

‐ Verification that neither the owners of the property nor anyone claiming through

them (e.g. tenants) are in possession of the property.


‐ Title update on the day of funding, including name searches.

Conclusion

As with all underwriting decisions, determining the requirements for insuring a sale by a

receiver is ultimately a matter of weighing the risk against the reward. The ultimate goal is for

the purchaser to have title to the property free of competing claims (even if such claims are

legally dubious). Some underwriters and reinsurers may consider receivers sales to be an extra‐

hazardous risk, requiring specific approval of the transaction by underwriting counsel. Others

may rely on guidelines such as those published here and elsewhere. A closer who is familiar with

his or her underwriter's requirements will be able to more easily work with receivers and the

attorneys involved in the lawsuit in order to reduce the time, expense and risk involved in the

overall process.

Appendices

1. Chapter 64, Texas Civil Practices and Remedies Code

2. Rules 695 and 695a, Texas Rules of Civil Procedure

Acknowledgements

The author would like to thank Mr. Richard Worsham, of Westcor Land Title Insurance

Company, for providing the article he prepared on this subject for the 2012 Land Title Institute

and permission to utilize it in connection with the preparation of this outline.

The author would also like to thank Ms. Jamie Jacks of Allegiance Title in Rockwall for her

insights and comments from the perspective a closer.

Texas Rules of Civil Procedure

SECTION 7. RECEIVERS

RULE 695. NO RECEIVER OF IMMOVABLE PROPERTY APPOINTED WITHOUT NOTICE

Except where otherwise provided by statute, no receiver shall be appointed without notice to take charge of property which is fixed and immovable. When an application for appointment of a receiver to take possession of property of this type is filed, the judge or court shall set the same down for hearing and notice of such hearing shall be given to the adverse party by serving notice thereof not less than three days prior to such hearing. If the order finds that the defendant is a nonresident or that his whereabouts is unknown, the notice may be served by affixing the same in a conspicuous manner and place upon the property or if that is impracticable it may be served in such other manner as the court or judge may require

RULE 695a. BOND, AND BOND IN DIVORCE CASES

No receiver shall be appointed with authority to take charge of property until the party applying therefor has filed with the clerk of the court a good and sufficient bond, to be approved by such clerk, payable to the defendant in the amount fixed by the court, conditioned for the payment of all damages and costs in such suit, in case it should be decided that such receiver was wrongfully appointed to take charge of such property. The amount of such bond shall be fixed at a sum sufficient to cover all such probable damages and costs. In a divorce case the court or judge, as a matter of discretion, may dispense with the necessity of a bond.


Wade A. Thunhorst

Title Resources Guaranty Company

Dallas, Texas

CONCEPT OF A RECEIVERSHIP

A “receivership” is a court proceeding in which a court appoints a “receiver” to receive and preserve property during the during the litigation.

The receiver is a disinterestedthird party officer of the court,who is charged with protecting the interests of all personsinterested in the property.

2016 TEXAS LAND TITLE INSTITUTE

CONTEXTS IN WHICH THEY ARISE

Judgments and Lien Foreclosures

Divorcing Couples

Missing Persons


CONTEXTS IN WHICH THEY ARISE

Sales of property by failed financial institutions

Entities where control of the entity is in dispute

Actions to vacate fraudulent purchases

Mineral interests where ownership is unclear

Homeowner Associations (some other states)


MAIN POINT

Sales by Receivers are similar to sales by Dependent Administrators and Guardians. They are subject to court approval, and require the “Texas Four Step Process”.

- Application for Sale- Order of Sale- Report of Sale- Confirmation of Sale


GOVERNING TEXAS STATUTES

Chapter 64, Texas Civil Practices and Remedies Code is the main statute- 64.001-04: General Provisions- 64.021-03: Qualifications, Oath, Bond- 64.031-36: Powers and Duties- 64.051-57: Claims and Liabilities- 64.071-76: Corporations- 64.091-93: Minerals- 64.101-108: Missing Persons


GOVERNING TEXAS STATUTES

Divorces: Family Code 6.502(a)(5) and 6.709(a)(3)

Collections: Civil Practices and Remedies Code 31.002(a)(3)

Texas Rules of CivilProcedure 695 and 695a


GOVERNING FEDERAL STATUTES

No comprehensive federal statute similar to Chapter 64 of Texas CPRC

28 USC 754: Multiple judicial districts 28 USC 1992: Service and recording 28 USC 2001: Location of Sale 28 USC 2002: Notice of Sale


APPOINTMENT PROCEDURES

Subject Matter Jurisdiction

Personal JurisdictionAll parties with interest in propertymust be joined and served

Qualifications- Residency- Bond


APPOINTMENT PROCEDURES

- Verify personal service on all interested parties. Service by publication not acceptable.

- TRCP 695: No receiver shall be appointed without notice if the property is “fixed or immovable.”

- Parties with an interest in theproperty include lienholders.


OBJECTIONS AND REMOVAL

Motion to Vacate Appointment

Interlocutory appeal appointing receiver

No right to appeal denial of receivership

Receiver has no standingto appeal any order


POWERS AND DUTIES OF RECEIVERS

Subject to the control of the Court:- Take possession of property- Receive rents- Collect and compromise demands- Make transfers- Perform other acts in regard to property

as is authorized by the court.


PROCEDURES FOR SALE BY RECEIVER

The sale of property in a receivership is not effective until such sale has been reported by the receiver to the court and confirmed by the court. Baumgarten v. Frost, 143 Tex. 633, 186 S.W. 2d 982 (1945).

The applicable procedures are similar to those used by a dependent administrator or guardian, i.e., the Texas four step process.



Receivers sometimes contend they have more authority than they really do, cut corners on documentation, or otherwise try to short circuit the required procedures.

Shortcuts are not acceptablefor title insurance purposes !



APPLICATION FOR SALE:

“Sale” means the execution of an earnest money contract, not the deed. The application for sale is the requestto market the property.



ORDER OF SALE

If the court agrees that the property should be sold, it enters an Order of Sale. The Order of Sale is the court’s permission for the receiver to negotiate contracts for the sale and eventual conveyance of the property.2016 TEXAS LAND TITLE INSTITUTE


REPORT OF SALE

After the receiver has found a buyer, the receiver submits the contract to the court for approval, and asks the court to confirm the sale.



CONFIRMATION OF SALE

If satisfied with the contract,the court approves the transactionby issuing the Confirmation of Sale.

The Confirmation of Sale is the title company’s authorization to record and fund.2016 TEXAS LAND TITLE INSTITUTE


Traditionally, the Confirmation of Sale is entered prior to closing.

In some locations, it is customary to close into escrow; signing the documents but not funding or recording until the Confirmation is issued. In that situation, an escrow agreement between the receiver and the purchaser is advisable.



The court’s confirmation of the sale cures all defects and irregularities in the receivership proceedings, provided the court had jurisdiction and the conveyanceis not subject to collateral attack.

An underwriter may be willing to rely on this doctrine to excuse sloppiness in the documentation of the first three steps.2016 TEXAS LAND TITLE INSTITUTE

TITLE VESTING

Unless the receivership order states otherwise, title to the property is not technically “vested” in the receiver. The Receiver has possession, not title.

Paragraph 3 of Schedule A still may show Receiver to be “appeared to be vested in title” because people look to this paragraph to determine who signs deed.

“Transferor” for 1099 and FIRPTA reporting is the owner, not the receiver.


RECEIVER’S DEED

The “Grantor” in the deed shouldidentify the Receiver, the party in record title, and the court. E.g.:

“Randy Receiver, Receiver in Cause No. 16-01234, 151st Judicial District Court of Harris County Texas, styled Carol Creditor v. David Deadbeat.”

Record the 4 step documents? Requirements vary; check with underwriter.2016 TEXAS LAND TITLE INSTITUTE

RECEIVER’S DEED

Receiver’s deed conveys only so much interest as the record title owners have.

Federal Tax Lien filed against owner after appointment would attach.

Require releases of allinvoluntary liens.


TITLE EXAMINATION REQUIREMENTS

Name search on owners

Name search on Receiver?

Update through date of Funding


TITLE EXAMINATION REQUIREMENTS

Insuring Subsequent Transactions: Do you need to look behind a prior owner policy?

- Master Indemnity does not cover Receivers

- Uninsured Receiver deeds are extremely risky


SPECIAL COMMENTS ON DIVORCES

Some courts say receiver may be appointed even if there is a less harsh remedy.

Court does not have to require bond.

Receiver may control both community and separate property.



Receivers are often real estate agents, and are paid with the commission on sale.

Not represented by counsel; may not be as familiar with the technical requirements.

May have substance of thefour steps without them being clearly labeled.



Net Proceeds usually not paid to Receiver:- Sometime paid to the couple- Sometimes paid to the court- Confirmation of Sale should specify

Some Orders require the couple to sign the deed and other closing documents. Some give Receiver authority to sign if one party refuses. Review Orders to determine scope of Receiver’s authority.2016 TEXAS LAND TITLE INSTITUTE


May need information from attorneys, because no direct contact with the couple.- Social Security Numbers for federal reporting- Personal information to clear Schedule C items- Work through attorneys for parties

Get closing figures to attorneys ASAP.- Disputes re payments out of proceeds common- May need Agreed Order or Rule 11 Agreement


PRACTICE TIPS

Contract: Contingent on court approval Application for Receivership and/or Order

Appointing Receiver:- State jurisdiction of court- State jurisdiction over defendant- Facts establishing need for receivership- State receiver is citizen and qualified voter- Identify property.- Give receiver power to “convey” property


PRACTICE TIPS

Report of Sale: Attach copy of contact Confirmation of Sale:

- Court has examined Report of Sale- Report conforms with orders of court- Identification of property- Name of purchaser- Property sold for a fair price- Disposition of net proceeds- Receiver directed to sign deed to purchaser


CHECKLIST

Subject matter jurisdiction of court Service of process on all parties with an

interest in the property Verification that all parties received notice of

all action taken with respect to the property No owners in military within the last year Proof receiver posted the required bond Copy of Order appointing receiver


CHECKLIST

Copy of Application for Sale Copy of Report of Sale Copy of Order of Sale Copy of Confirmation of Sale Verification Confirmation not appealed Review and approval of receiver’s deed


CHECKLIST

If in federal court and property in a different district, file stamped copies of documents affecting title, filed in the other district.

Verification that neither owners or anyone claiming through them is in possession

Title update ondate of funding.


CONCLUSION

THANK YOU FOR ATTENDING!

Wade A. ThunhorstTitle Resources Guaranty Co.8111 LBJ Freeway, Suite 1200Dallas, Texas [email protected]


Documents

UNDERWRITING AND CLOSING A RECEIVERSHIP