The short answer
A receiver is a court-appointed custodian who takes over the operation of the property and the collection of its rents on the lender's application, usually after an event of default under a loan whose documents expressly preserve the lender's right to one. The receiver pays operating expenses and the lender from the rents under court supervision; nothing reaches beneficial owners while the receivership runs. Title does not move: the trust still owns the building, you still own your beneficial interest, and the trust's taxable income is still yours to report. The receivership ends in a cure, a sale by the receiver with court approval, a foreclosure, or, if the trust files for bankruptcy, a turnover to the bankruptcy estate. Because Rev. Rul. 2004-86 forbids the trustee from refinancing or renegotiating the loan, the cure is rarely in the trust's own hands. Your interest cannot be sold on any market during this period and your equity can be lost in full.
At a glance
| Who appoints | A court, on the lender's application; in federal court the action is governed by Rule 66 |
|---|---|
| Loan document basis | A filed DST loan agreement states that its nonrecourse limits do not impair the lender's right to a receiver |
| Rents during default | Collected rent moves to a lender deposit account from the day of an event of default under the same agreement |
| Receiver's duty | Must operate the property according to the laws of the state in which it is situated |
| Title | Stays with the trust; a receivership is not a foreclosure |
| If the trust files | A receiver is a custodian who must turn over the property unless the court excuses it |
| Postpetition rents | Remain the lender's collateral to the extent the security agreement provides |
A receiver is the lender's remedy short of foreclosure, and the loan documents reserved it on the day the trust borrowed
A receiver is appointed by a court, not by the lender, but the lender's right to ask for one is written into the loan. A loan and security agreement for a multifamily DST on file with the SEC limits the lender's recovery to the borrower's interest in the mortgaged property and then provides that those nonrecourse limits do not impair the right of the lender to obtain the appointment of a receiver. The same agreement carves a receiver appointed at the lender's request out of its definition of a bankruptcy event, so that asking for one does not itself trigger full recourse.
In federal court, Rule 66 of the Federal Rules of Civil Procedure governs an action in which the appointment of a receiver is sought, and such an action may be dismissed only by court order. State courts appoint receivers under their own statutes, which is where most commercial real estate receiverships run; the mechanics vary by state and are a question for the trust's counsel.
Whichever court appoints, 28 U.S.C. section 959(b) requires a receiver managing property to operate it according to the valid laws of the state in which it is situated. The receiver is an officer of the court with a defined mandate, usually to collect rents, pay operating expenses, maintain and lease the property, and report; the sponsor's affiliate stops managing on the day the order is entered.
What the receiver controls: the rents, the operating account, the leases and the manager
Rent is the center of it. The filed agreement requires all rents and master lease rents to be deposited into a lender-controlled deposit account within two business days of receipt, and from the occurrence of an event of default a cash management period begins in which the lender may direct every collected dollar to itself, release only approved expenses against a certified monthly statement, and hold the balance in a cash collateral reserve as additional security. A receiver steps into that flow with court authority to collect directly from tenants.
The receiver typically engages its own property manager; the filed agreement already lets the lender terminate an affiliated manager when the actual debt service coverage ratio falls below 1.0 to 1.0. In a master-leased trust, the lender may terminate the master lease once a material master lease default coincides with a loan default, and a receiver can then collect from the occupants directly. The sponsor's role, in other words, can end before the trust's does. How that structure is built is on DST master lease risk.
The receiver does not pay beneficial owners. The order usually directs net rents to the lender, to reserves or to the court's registry, and the trustee has no cash to distribute; what the suspension does to your tax return is on my DST stopped paying distributions.
What investors still hold: the beneficial interest, the information right and the tax items, but not a vote
Title stays with the trust. A receivership is a custodial remedy, not a transfer, so your beneficial interest continues and your share of the trust's income, deductions and credits continues to be reported to you as a grantor. If the receiver collects rent that goes to the lender as principal or into reserves, the trust may show taxable income that you never see in cash; if interest and depreciation exceed collections, your share may be a passive loss, as explained on DST passive losses and sale.
Under 12 Del. C. section 3819 you keep the right to demand information on the trust's business and financial condition in writing, and section 3805(b) continues to shield trust property from your own creditors. What you do not have is a vote on the receivership; the trustee is the party with standing to object or negotiate.
Ask the trustee for the receivership order, the receiver's monthly reports, and the lender's statement of the default and the balance owed; those three documents say more about the likely ending than any investor update.
Four endings: a cure the trustee usually cannot fund, a receiver's sale, a foreclosure, or a bankruptcy turnover
A cure means the default is paid and the loan reinstated. Rev. Rul. 2004-86 bars the trustee from renegotiating the debt or accepting new contributions, so the money must come from a sponsor affiliate honoring a guaranty or from converting the trust into an LLC that can borrow, the step described on the DST springing LLC, which ends your section 1031 options for the next sale.
A receiver's sale, with court approval, or a foreclosure transfers the property and ends the investment. Sale proceeds go to the lender first; whatever remains flows to the trust and then to you. A foreclosure of nonrecourse debt is a taxable disposition in which the amount realized includes the whole loan, with the arithmetic on sponsor or master tenant bankruptcy; if the trust sells for enough to leave equity, your next exchange runs from that closing, as on what happens when a DST sells.
If the trust itself files a bankruptcy petition to stop the sale, the receiver becomes a custodian under 11 U.S.C. section 101(11), which includes a receiver of any of the property of the debtor appointed in a proceeding not under the Bankruptcy Code. Under section 543 a custodian with knowledge of the case must stop administering the property and deliver it to the bankruptcy trustee or debtor in possession, unless the court excuses turnover under section 543(d) because creditors are better served by leaving the receiver in place. Under section 552(b)(2) the lender's lien keeps reaching postpetition rents to the extent the security agreement provides, and under section 363(c)(2) those rents are cash collateral the debtor cannot spend without the lender's consent or a court order.
A hypothetical receivership in round numbers, so you can read your own trust's reports against it
Hypothetical: a trust owns an apartment property worth $20,000,000 at purchase with a $12,000,000 nonrecourse loan paying $800,000 a year. Occupancy falls, net operating income drops to $700,000, the coverage ratio is below 1.0, the reserve is exhausted and the lender declares a default. The lender obtains a receiver, who collects the $700,000, pays operating costs already netted from that figure, and remits what remains to the lender against the $800,000 due; the shortfall accrues to the loan balance with default interest.
Your 3% interest, bought for $240,000, receives nothing, and your 3% share of the trust's taxable result, roughly the $700,000 collected less interest and depreciation, appears on your grantor statement whether it is income or a passive loss. If the receiver sells the property a year later for $13,000,000, the lender takes $12,000,000 plus accrued interest and costs, and the residue for all investors together may be a few hundred thousand dollars against $8,000,000 of original equity.
If instead the sponsor converts the trust to an LLC and a new lender refinances at $11,000,000, the receivership ends, distributions may resume at a lower level, and your next exit is a taxable sale of an LLC interest. Model your own trust's loan balance, net income and reserve on this grid with your CPA; the figures above are invented to show the mechanics.
Related questions
Is a receivership the same as foreclosure?
No. A receiver operates the property for the court while title stays with the trust; foreclosure transfers title to the lender or a buyer. A receivership often precedes a foreclosure, but a cure or a refinancing through an LLC conversion can end it without one.
Can beneficial owners object to the receiver's appointment?
The trust, through its trustee, is the borrower and the party with standing; owners of beneficial interests generally are not. You can ask the trustee what position it is taking and demand the order and the receiver's reports under Delaware law.
Do I still owe tax while a receiver holds the rents?
You report your share of the trust's income or loss for the year regardless of cash. Rent applied to the loan or reserves can produce taxable income with no distribution; a year of heavy interest and depreciation may produce a passive loss instead.
Can the receiver sign new leases or spend money on the building?
Within the court's order, yes, and that authority is one reason lenders seek a receiver rather than waiting. The trust's own trustee is limited by Rev. Rul. 2004-86 to minor non-structural work, which the receiver's mandate is not.
What if the trust files for bankruptcy after the receiver is appointed?
The receiver must turn the property over to the bankruptcy estate unless the court excuses it, and the lender can ask for relief from the stay where the trust has no equity in the property. The case timeline for a sponsor rather than a trust is on when a DST sponsor files Chapter 11.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- SEC EDGAR, loan and security agreement for a multifamily DST (2021), Exhibit 10.5: receiver reservation, deposit account and cash management period, DSCR manager test, master lease termination, bankruptcy event definition
- Federal Rules of Civil Procedure, Rule 66, Receivers
- 28 U.S.C. section 959, trustees and receivers suable; management; state laws
- 11 U.S.C. section 101, definitions (custodian)
- 11 U.S.C. section 543, turnover of property by a custodian
- 11 U.S.C. section 552, postpetition effect of security interest (rents)
- 11 U.S.C. section 363, use, sale or lease of property (cash collateral)
- 11 U.S.C. section 362, automatic stay and relief from stay
- 12 Del. C. chapter 38, Delaware Statutory Trust Act, sections 3805 and 3819
- Rev. Rul. 2004-86 (IRS), trustee powers: no renegotiation of debt, no additional contributions, minor non-structural modifications only