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
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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?