New receivership statute allows free and clear sale of property with only ten days’ notice to lienholders

On March 23, 2015, the new receivership statute is scheduled to take effect. While many of the changes provide important clarity to receivership law, one change may cause concern for financial institutions holding liens on property.

Specifically, R.C. 2735.04(D) allows a receiver to sell property free and clear of liens. However, R.C. 2735.04(D)(2)(b) only requires ten days’ notice to owners or lienholders prior to sale.

So long as the receiver is appointed in connection with a foreclosure complaint, lienholders should receive service of the complaint and have an opportunity to appear in the litigation — the same as before the statutory changes. Importantly, though, if a receiver is appointed in a case other than a foreclosure case, lienholders might not receive notice until ten days prior to a sale. For example, a lender could file a complaint for money judgment on a cognovit note or other debt instrument. The only defendants in that case would be the judgment debtors, not the lienholders on property owned by the judgment debtors. The plaintiff could then have a receiver appointed to take control of the judgment debtor’s property, pursuant to R.C. 2735.01(C), to carry the judgment into effect. The result would be that a receiver has been appointed to take control of property, but the lienholders have not been joined as parties to the case or received notice of the litigation.

Under this fact pattern, the statute appears to authorize a sale of property free and clear of liens after only ten days’ notice to lienholders (see R.C. 2735.04(D)(2)(b)). Therefore, financial institutions holding liens on real property in Ohio will want to make sure that they have a process in place to escalate any application filed by a receiver to sell property. Lienholders will want to immediately evaluate their interest in the property and consider whether an objection to the sale motion should be filed.