Assignments of Rents and Receiverships. Why do lenders take “assignments of rents” (security interests in rents)?. Lengthy foreclosure period (or bankruptcy may intervene) MR is diverting rents, “milking” the property
Pmts to reserves
Security interest in
Bank as custodian/ escrowee
Typical language: bankruptcy is filed…
All of the rents are hereby absolutely and unconditionally assigned to Mortgagee, to be applied by Mortgagee in payment of Indebtedness. ... [T]he assignment is an absolute assignment and not merely a security interest. Until terminated by the Mortgagee as herein provided, as a result of an Event of Default, Mortgagor shall have a license to collect and receive all Rents as trustee for the benefit of Mortgagee.
Matter of Millette bankruptcy is filed…
Assignment of rents
Judgment lien & garnishment
Restatement § 4.2: (collateral) assignment:
The mortgagee’s right to actual possession of the rents arises upon:
(1)satisfaction of any conditions in the mortgage (e.g. default); and
(2)delivery of demand to the MR and to any other mortgagees of which ME has notice.
[As a practical matter, notice to the tenants is obviously also necessary.]
As we’ve seen, there are several ways to “trigger” or “actuate” an assignment of rents.
What’s the bestway?