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Utah Becomes First State to Enact the Uniform Commercial Real Estate Receivership Act

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By:  David Leta

On March 25, Utah became the first state to enact the Uniform Commercial Real Estate Receivership Act (“UCRERA”) which was drafted by the National Conference of Commissioners on Uniform State Laws (the “Conference”) and adopted by the Conference at its annual meeting in July 2015. The Utah Uniform Commercial Real Estate Receivership Act, (the “Utah Act”) mirrors UCRERA and applies to all commercial real property receiverships that are filed in the Utah District Courts on and after May 9, 2017.

The Utah Act provides both substantive and procedural guidance in an area of law that historically has been marked by inconsistency and uncertainty. This new law not only will provide judges, lenders and other receivership constituents with much needed instruction about their respective rights and responsibilities in commercial receivership proceedings, but it also is likely to reduce the cost and increase the predictability of these receiverships in Utah.

The Utah Act is found at 78B-21-101, et seq., Utah Code Ann. 1953. In essence, the Act replaces Rule 66, Utah R. Civ. P., for any receivership that involves an interest in real property (and any personal property related to or used in operating the real property). The statute, however, does not apply to real property improved by one to four dwelling units unless those dwelling units are in fact used for agricultural, commercial, industrial or mineral-extraction purposes. The statute also does not apply to a receivership authorized under Utah law in which the receiver is a governmental unit or an individual acting in an official capacity on behalf of a governmental unit.

Once a court appoints a receiver under the Utah Act, the appointing court has exclusive jurisdiction to direct the receiver and determine any controversy related to the receivership or to the receivership property. The Utah Act addresses various procedural aspects of the receivership, including (a) who may be a receiver, (b) what type of bond must be posted by the receiver, (c) the status of the receiver as a lien creditor, (d) the effect of the receivership on security agreements covering after-acquired property, (e) the collection and turnover of receivership property, (f) notice of the receivership to parties in interest, (g) the duties and powers of the receiver, (h) the duties of the property owner, (i) the stay and injunctive aspects of the receivership regarding the rights of other creditors, (j) the receiver’s ability to engage and compensate professionals, (k) the receiver’s ability to use and transfer property not in the ordinary course of business, (l) the receiver’s ability to assume and reject executory contracts, (m) the defenses and immunities available to the receiver, (n) the receiver’s reporting requirements, (o) the process for asserting claims against the receivership, (p) the removal and replacement of the receiver, (q) the termination of the receivership, (r) ancillary proceedings in another state that affect the receivership, (s) the effect of the receivership on enforcement of rights by a mortgagee and (t) the finality of receivership orders. A comprehensive discussion of how the statute addresses each of these subjects is beyond the scope of this alert. Since the Utah Act mirrors UCRERA, the comments contained in UCRERA will be instructive in resolving any questions that might arise under the Utah Act.