“Man forecloses on bank” may beat out the proverbial “man bites dog” in a shocking headline contest – but that’s just what some local contractors have been able to do, with the help of an obscure housing law on receivership.   

The law is meant as a cattle-prod for owners of distressed properties – often lenders, these days – so they don’t fall into neglect, spurring neighborhood blight. If a property falls into disrepair such that it no longer meets health and safety codes for habitability, anyone can apply in court to become a receiver for that property, pledging to repair it and make it livable again.

In order to recoup the costs of the repair, receivers are authorized to collect rent from tenants or bill the owners – and if the owner doesn’t pony up, they’re entitled to foreclose on the property themselves, with their lien taking precedence over any existing mortgage, though not over any city or state tax liens. Judges supervise the receivership to make sure repair costs aren’t inflated and that contractors are licensed to perform the required work.

A Fresh Look

“The bank can either agree to pay the cost of rehabbing the property or not. In our cases, the bank has always declined,” said Alan Hope, managing partner of the Charles Hope Cos. in North Andover, whose firm has completed eight such receiverships and has several more in process. “In which case, we foreclose on the bank. We have an auction, and if [no third-party bids at auction], we take it back,” and sell it.

The receivership statute has been on the books for years, but it’s rarely been implemented – the last time the U.S. saw a wave of receivers clamoring to take over properties was during the Great Depression.

But since the current foreclosure crisis hit, advocates have urged cities and towns to take a fresh look at the practice. A 2010 study on the uses and benefits of receivership conducted by Chris Edell and Kai-yan Lee, two Federal Reserve Bank of Boston analysts, concluded that receivership is far preferable to its main alternative: Condemning the building. Condemnation too often requires all tenants to be evicted, and frequently sparks lawsuits by former owners.

Additionally, Massachusetts Attorney General Martha Coakley has been a strong advocate for the practice. In 2009, her office launched an Abandoned Housing Initiative (AHI) to offer municipalities and contractors legal guidance on how to successfully complete a receivership. The AHI currently has 255 active abandoned properties in 29 communities in the program, said Emalie Gainey, a Coakley spokesman.

The Catch

Receivership initiatives might seem like the perfect opportunity for out-of-work contractors, given a shaky market and the difficulties of obtaining financing for new projects. But the legal hurdles can be substantial.

“Usually the rehabilitation doesn’t take much time, but it’s the paper work. You get into all sorts of issues with the owner of the property,” Hope said. “There’s a involved.”  

Owners can block receivers from being appointed by agreeing to make repairs themselves. And even if they refuse to fix what’s wrong, they can still fight the process in court. As a result, it can be many months before contractors are able to recoup their costs.

A closer look at the AHI program tells the tale: Receivers have been assigned to 36 of those properties. Another 48 cases have reached a settlement with the identified owner, and repairs are currently underway. The remaining 171 cases are in some form of litigation. An additional 130 properties have been brought up to code by their owners.

And that can put contractors off.

“I’d rather be doing new construction, where you know what you’re building,” Hope said. “When you’re doing rehabilitation, especially in the Merrimack Valley where you’re dealing with things bought in the 1800s, how do you bring something like that up to code? It can cost a lot, and the market’s not there to sell it.”

Especially with single families, his firm has sometimes found themselves stuck with a property where the costs of rehab exceed the market value of a home.

But he said he’s learning to be more selective – and he’s starting to find projects that make the time and expense worth it.

“In Lowell we’ve been given a 12-unit building, and in Lawrence we’ve been given two rooming houses – one is 72 units, one is 68 units,” each worth more than a million dollars, he said.