Drafting and Enforcing Assignments of Rent: Collateral vs. Absolute Assignments, Receiverships, Bankruptcy Issues

Description

State and federal courts, including bankruptcy courts, have struggled with issues involving the creation of an enforceable assignment of rents and the exercise by a mortgagee, or lender, of its rights to collect and retain rents thereunder. The issues are critical when the mortgagor, or borrower, is the subject of a bankruptcy case.

Over time, two types of assignments of rent have developed. Under a collateral assignment, a security interest in favor of the lender is created and the borrower retains title to the rents and collects rents until a triggering event or action occurs.

Under an absolute assignment, title to the rents or leases passes to the lender at the time the assignment is made and the lender allows the borrower to collect rents, usually pursuant to a license, until a triggering event or action occurs.

Whether the lender or the borrower owns the rents is critical, particularly in the event of a borrower’s bankruptcy, since ownership will control whether the rents are property of a debtor’s estate constituting cash collateral that can be used by the debtor.

The creation and enforcement of assignments of rent is governed by state law (with the overlay of bankruptcy laws such as the automatic stay), and different states have adopted different laws. While the Uniform Assignment of Rents Act was adopted nearly 20 years ago, very few states have adopted it.

Listen as our authoritative panel discusses the enforcement of assignments of rents, including an introduction into various laws, practices and recent caselaw.