Assignment of Rents Enforcement After a Default: Receivership, Foreclosure, and Bankruptcy Issues

This CLE webinar will discuss the different approaches that state and bankruptcy courts have taken to the exercise of assignment of rent remedies and how those approaches should inform the drafting of an assignment of rents and lease documents in a commercial mortgage transaction.

State and federal courts (including bankruptcy courts) have struggled with actions that a mortgagee can take when holding a recorded assignment of rents to obtain title to the rents and directly collect them to the exclusion of the mortgagor. The issue is critical if a bankruptcy proceeding has been filed by or against the mortgagor.

Under the Bankruptcy Code, "perfection" of a mortgagee's interest in rental income occurs at the time of recordation of the mortgagee's assignment-of-rents document. But, an unresolved issue is what additional steps the mortgagee must take to "activate" or "enforce" its contractual right to the rents upon a default by the mortgagor.

Different rent assignments have developed in response to state and bankruptcy case law. A collateral assignment of rents allows the borrower to collect rents until the lender, upon default, takes some affirmative action, such as appointing a receiver or demanding rents from the borrower or tenants. Under an absolute assignment, the borrower may collect rents based on a license from the lender, but the lender's right to collect rents is triggered immediately upon the borrower's default. The distinction is critically important at the default and foreclosure stages and in bankruptcy.

Listen as our authoritative panel discusses the enforcement of the assignment of rents and leases after a commercial mortgage default.