Use of Receiverships to Reach Assets Held in Trust

 

Many asset protection strategies involve transfers of property into trust. While these strategies may initially serve the purpose of making assets more difficult for creditors to locate, certain trust assets (once discovered) are more easily reached by creditors than if the property was held outright.

After entry of judgment, assets attached by creditors may be sold at auction. As regards real estate in Massachusetts, the sheriff’s sale is subject to the debtor’s right to redeem the property by tendering the bid price – a right which renders title generally unmarketable and tends to significantly reduce the sale price since a buyer may lose his interest if the debtor elects to redeem. Additionally, the result of the auction process is entirely dependent upon the attendance of multiple interested bidders

In contrast, trusts are equitable constructs and remedies to reach assets within them may be structured through the court’s equity powers to avoid the restrictions of a sheriff’s sale.

One such remedy is through the court’s appointment of a receiver to hold the debtor’s property and exercise such rights with regard to it as may be requested by the creditor and approved by the court. The receiver’s authority can be structured to meet the need of any particular circumstance, including the right to market property for private sale (subject to court approval) in order to maximize return and the right to sell property free and clear of all liens – similar to the authority of a trustee in bankruptcy.

By selling real estate through a receiver, a creditor is in a better position to maximize the return available on a debtor’s assets held in trust than would be the case if the assets had remained in the debtor’s name alone.