Assignment Of Rents And Leases

Assignment Of Rents And Leases-75
Under "lien theory," a lender must foreclose its lien before taking title to the collateral or, at a minimum, the lender must take affirmative steps in order to make a case for control over rents.Some states, such as Maryland, have enacted legislation to dispense with this requirement in order to eliminate inconsistent determinations as to what constitutes sufficient affirmative efforts by a lender – a dilemma reflected in the cases described above.On the eve of the foreclosure sale, the borrower filed for chapter 11 protection in the U. Bankruptcy Court for the Southern District of New York.

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Right To Education Act Essay - Assignment Of Rents And Leases

In a collateral assignment, the borrower is generally considered to retain ownership of the rents until the lender takes action to enforce the assignment or gains possession of the property through foreclosure.This prevents the borrower’s disposing of rent money due the lender, pending foreclosure.Under a collateral interest, however, some bankruptcy courts have held that the rents belong to the borrower until title to the real estate merges with the right to collect rents.The uniform act generally strengthens the lender’s position by recognizing his interest in rent money pending foreclosure and bankruptcy proceedings.Under some circumstances, a bankruptcy court may not only delay or stop a foreclosure process, but actually declare a mortgage to be void, relieving the debtor of the obligation to continue making any mortgage payments.Dec.11.2012 In exchange for a loan secured by commercial property, a lender often receives an absolute assignment of the property's leases and rents.But who owns those rents once the borrower files for bankruptcy protection?Although the lender commenced a foreclosure action, had a receiver appointed, and obtained summary judgment of foreclosure prior to the debtor's bankruptcy petition, the court ruled that these measures were insufficient to obtain control of the property's rental revenues.The court acknowledged other decisions that reached different results.However, the court observed that because New York operates under a "lien theory" of mortgages, an assignment of rents could not be "absolute" and a secured lender would acquire "title" to the property's rents only after foreclosing its lien at a sale.The court ruled that the lender's efforts to exercise control over the rents gave the lender only an enforceable interest in the rents – but not title – and permitted the debtor to utilize the rents, in the first instance, as cash collateral.

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