Health and Safety (“H&S”) receiverships are codified at California H&S sections 17980.6 & 17980.7. These statutes allow municipalities to address major nuisance properties that burden city departments. Properties that require H&S receiverships must substantially endanger public health and safety. However, certain situations require the receivership remedy to abate nuisance properties. The Ghostship case in Oakland is a scenario where a nuisance property became so entrenched with code enforcement violations that thirty-six people were burned alive while trapped in the property. Major nuisance properties like the Ghostship property cause tragedies, decrease property values, and hurt neighborhood morale. Municipalities want to address these properties but may not know about H&S receivership. However, H&S receiverships are the remedy to abate substantially dangerous properties.
Receivership is an equitable remedy that results in a state or federal court taking control of assets and/or property through a neutral receiver. In California, specific rules of court for receivers are outlined,1 and federal courts have specific rules as well.2 Three practical examples of receivership include Bernie Madoff’s Ponzi scheme being put into receivership by the SEC, the FDIC being named the receiver of the former Washington Mutual Bank and transferring all its assets and liabilities to JP Morgan Chase Bank, and the California Supreme Court allowing a city to appoint a receiver and granting him permission to demolish a nuisance property.3
City attorneys usually petition the court to appoint a receiver over nuisance properties, but local criminal prosecutors may also use receivership as a tool. As noted above, where a building violates the H&S Code, to the extent that the health and safety of residents or the public is substantially endangered, the municipality must issue a notice requiring repair and/or abatement. After such a notice has been issued, California law requires that two legal elements be satisfied for a Court to appoint a receiver over a nuisance property pursuant to H&S 17980.6 & 17980.7: (1) the owner must have been given a reasonable time to abate the nuisance; and (2) the receiver must be qualified to serve as a receiver.4
A common question that arises is why do properties end up needing a receiver? Major nuisance properties arise for a variety of reasons, but three of the most common are:
(2) Deceased property owners without heirs, or heirs that are unable or unwilling to care for the property: Occasionally, the heir of the owner is the source of the blight. If this occurs, it is usually due to the relative of the deceased owner having substance abuse issues. The heir will never initiate probate leaving the deceased owner on title. However, the property will turn into a drug house, but with the deceased owner on title, the troublesome heir cannot be responsible for property they do not legally own. However, this matter can be resolved through a H&S receivership.
- (2) Zombie foreclosure properties:
this is when a bank initiates a
foreclosure but never
forecloses. The owner having
not made payments on their
mortgage and receiving a
notice of foreclosure from the
bank often voluntary leaves,
believing the bank is
responsible. However, the
bank claims the owner is
responsible (and in most cases
the bank is right) because they
are not required to foreclose.
The property remains in a state of limbo without anyone caring for it, which causes it to fall into disrepair. To resolve the finger pointing between an owner and bank, a H&S receiver can be appointed to take control of and abate the nuisance property.
- (3) Owners with hoarding issues or other mental health conditions: These are difficult cases because the owner is often a kind person that is unable to properly care for their property. These owners may have rodent infestations, fire hazards, and other nuisances that endanger public health and safety, but the owner is unable to comprehend the dangers.
Now that some common scenarios giving rise to H&S receiverships have been explained, how does a receivership resolve a nuisance property? The answer is that, for all intents and purposes, the receiver becomes the owner of the property. Therefore, the receiver can remove anyone improperly occupying the property, borrow money against the property, and hire contractors to clear debris and repair the property. Thereafter, the receiver can sell the property to a responsible owner, to the extent that no responsible party comes forward to pay the costs of remediation.5
One of the most common questions asked regarding receivership is how do receivers get paid and what happens to the proceeds from the receivership sale? In many cases, a receiver is paid through the issuance of receiver certificates, which become a super-priority lien against the property pursuant to court order. The general rule is that funds from the sale of real property are required to be distributed
However, receiver certificates are typically assigned super- priority status over existing liens.7 This is because most lenders are unwilling to provide funding to remediate nuisance properties absent a guarantee of priority of payment. The funds borrowed by the receiver pursuant to a receiver certificate are used to remediate the property and, where appropriate, pay the receiver’s fees and costs, subject to court approval.8
In the end, H&S receiverships are an excellent tool for any municipality to understand and utilize for nuisance properties. This is because every municipality has properties that cause major headaches and appear unsolvable. However, local leaders can look to H&S receiverships to abate major nuisance properties.
- California Rule of Court1 3.1175-3.1184.
- Federal Rule of Civil Procedure 66
- (City of Santa Monica v. Gonzalez (2008) 43 Cal. 4th 905, 928-929.)
- City of Desert Springs v. Valenti (2019) 43 Cal. App. 5th 788, 793-794.
- California Code Civ. Proc., §568.5
- Bear Creek Master Assn. v. Southern California Investors Inc. (2018) 28 Cal. App. 5th 809, 817.)
- City of Sierra Madre v. Suntrust (2019) 32 Cal. App. 5th 648, 661; see also County of Sonoma v. Quail (2020) 56 Cal. App. 5th 657, 672-673.)
- California Rule of Court 3.1184
*Ryan Griffith is an attorney licensed to practice law in California and Washington D.C. Mr. Griffith serves as an attorney and receiver at Bay Area Receivership Group. Mr. Griffith is also a law professor at Golden Gate University School of Law and Empire College of Law where he teaches Remedies, Trial Advocacy, and Real Estate Transactions.