Assignment of Rents (Residential)?

19 Replies

Anyone have any experience, good or bad, with getting an Assignment of Rents for Residential Properties?

We're trying our hand at this for the first time and were curious what others have done.

For this particular loan, our due diligence revealed that the borrower filed multiple BKs to stop sheriff's sales on multiple rental properties. (He had to convert one to a BK Chapter 11 because he had too much property!) He listed our collateralized property as a rental on his filings, which backed up the servicing comments we read. "Paid to" date is in 2009.

Since the sheriff won't schedule any sales through the rest of the year, we decided to try for a Motion to Assign Rents. Reasons to try this:

1. The sheriff may extend the ban on foreclosures past Jan 1

2. Possibility of getting some income from tenants while we wait

3. More importantly, deny the borrower income to fight us in a potential BK proceeding.

4. Low cost and short timeline to get the motion granted (less than $1000 and 30 days)

I've done similar but a much simpler situation. I've had options or benefits on housing that was in foreclosure. I was not the owner. Simply got the tenant to pay me (my company) directly, and until proven otherwise in court, it stands. However, I had the deal in place prior to any issues, and do that on options. My option included the right to the rents, so it really wasn't assigned. But had a few that I changed things to my favor prior to the shxx hitting the fan. The banks or other creditors were not a threat on those deals.

Now, a lot of notes provide for the note holder to be entitled to rents should the note be in default.... fortunately, I've never had that as an issue.

I just don't like to get complicated and for only a few (6?) months rent, the time/costs to protect it may just not be worth it. Easier to just go out and get another deal.

@Steve Smith Unless I'm missing something, sounds kind of shady to me. Maybe not illegal but not really ethical. Big banks and hedge funds aren't too hard to outmaneuver so understood why they wouldn't be a threat. What was in it for the property owner/borrower in order for them to give you the tenant's rent money?

Did you offer the property owner money for the option to buy which included keeping the rents?

@Andy Mirza :

Most were lease options, done before any foreclosure issues, some after the foreclosure with the hope of salvaging it without the  commitment to do so. Done often and it can be risky. Nothing illegal or unethical about it. I will argue to never cross that line. In almost all cases I went right to the lender to negotiate with them.

We received our order for the assignment of rents today. Looking through it, I was pretty impressed. It empowers the receiver (a property management company) to basically take over the tenants and the property. It orders the owner/borrower to give everything over to the receiver and not to interfere with their duties.

This borrower has filed numerous bankruptcies to stop foreclosure sales on other rental properties that he's owned. By getting this assignment of rents, we've taken away the main reason for him to file BK to stop our sheriff's sale. (At least that's what I think now; you never know what a BK judge is going to do.)

It also gives us a head start by enabling us to make contact with the tenants & verify the condition of the property ahead of the sheriff's sale. (The sheriff has indicated that they will resume sheriff's sales at the beginning of the year.)

@Chris Seveney It cost $650.

I think it's totally worth it even though the property management company hasn't started yet. To deny the borrower this cash flow and the incentive to file BK is enough of a victory. The idea of seeing the interior and getting things sorted out with the tenants before the sheriff's sale gives us a big head start on liquidation. And bringing in some rental income would be frosting on the cake. I'll let you know how it goes.

It's totally worth it in judicial states your foreclosure attorney should be able to include it in the complaint, through service you can verify if there are tenants then motion the judge to grant the assignment of rents.

The court order goes straight to the tenants. 

Originally posted by @Andy Mirza :

@Chris Seveney It cost $650.

I think it's totally worth it even though the property management company hasn't started yet. To deny the borrower this cash flow and the incentive to file BK is enough of a victory. The idea of seeing the interior and getting things sorted out with the tenants before the sheriff's sale gives us a big head start on liquidation. And bringing in some rental income would be frosting on the cake. I'll let you know how it goes.

I am going through this right now as I am on a committee for creditors in a larger case..  the lenders lawyers call this cash collateral.. and for sure have the right to it..  I think being in BK makes it much easier and cost effective for you.

I tried this on borrowers who were not in BK but were in default with me.. and those you need to run through the system and time and costs probably not worth it..  But I would say 50% of the renters when i showed up ( in person) would agree to send me the rent once i showed them our deed of trust and note that clearly says assingment of rents. and a letter from our attorney giving us the rights under the assignment of rents.. Others were to confused and scared.. 

BK to me its totally worth it.. NO BK  pretty tough.  And congrats on getting it done.

The Order for the Assignment of Rents was very thorough and basically allows your receiver to step into the shoes of the landlord. For a landlord/borrower who's collecting rents without paying a mortgage, it's a total buzzkill. There's no longer an incentive to do anything to keep the property, in my opinion, assuming that there's no equity.

In this case, the receiver/property manager went to the property. She made contact with one tenant and discovered that the borrower was fixing up the other vacant unit and was planning to rent it to someone in a few days. Luckily, he was cooperative in dealing with our receiver. I think he knows the game is up.

I have experience with rentals and property management companies. Our receiver was selected by our attorney & asked us for a lot of money to manage the property. I'm not sure if this is a normal thing for receivers but I'm planning to do the research to find out. I don't think that I can change the receiver without making the request through the courts, which involves time and money, since the receiver is specified in the order.

In this situation, the extra money is well worth it to get the property under our control and to deny the borrower a way to fight us.

@Andy Mirza

We had a poor experience in Florida doing this.

There was already a receiver in place acting for the HOA. We came in for assignment of rents. It was granted. Judge assigned a local attorney to be new receiver. Well this pissed off the HOAs reciever because the judge never mentioned them. And they were keeping half the rent checks based on their deal with HOA. So they filed motion after motion trying to get our receiver removed because they were already receiver. Of course we took priority over the HOA. After many hearings where the new receiver had to show up for, we racked up an $ 8,000 bill. We did end up getting around 3 months of rent which offset it alittle bit. But it really wasn't as easy as putting our choice of proper management company in place.

Deal ended up ok, but I would be careful next time finding out who will be the receiver.

We did file motion for assignment of rents in another deal, in this one the defendant tried to say that the house was rented by family at 0$.

Well, the tenant left me a voicemail asking where she pays the rent checks to. So borrowers were caught in a lie and their attorney fired them because they lied to them and allowed us to get judgment without a fight, so we got no rents but got the case moving forward. In this county our own attorney was assigned as receiver so we didn’t have any extra costs.

So it’s very YMMV situation.

@Ian Green Sorry to hear about that first situation. I'll definitely keep that in mind when dealing with HOAs.

Moving the case forward is our top priority in getting the Assignment of Rents. In our case, we took away the main reason why the borrower would file BK by depriving him of the ability to skim rents.

Plus, we get a headstart on dealing with the occupants. We can deal with them now as opposed to waiting for the sheriff's sale and confirmation hearing.

What exactly are you trying to do?

Standard apartment PSA, I have a piece of paper called Assignment/Assumption of Leases or title drafts one up signed by both seller and buyer.

Gives buyer the right to collect and enforce leases same as seller.  Of course the multiple moratoria have impaired the seller (and thus the buyer also) rights to enforcement of leases.

@Steve Morris

This is for when the borrower / owner of property is renting out their property but delinquent on the mortgage and the mortgage holder has filed foreclosure. The lender is able to collect the rents but needs a court order.

Update to this situation:

Getting the Assignment of Rents worked out perfectly & I would absolutely do it again for any NPNs that we have where we know that the property is tenant occupied.

We bought this loan in Oct, 2020 that backed a duplex in NJ. During DD, we saw that the borrower filed numerous BK's in the past in apparent attempts to stop foreclosure sales of his rental properties. (He had so many rental properties that his last BK had to be converted to Ch 11!)

When a borrower has a rental property with a loan in delinquency, he's typically skimming the rents and not paying the mortgage. With a borrower with previous BKs, he's also not afraid to keep filing BKs because his credit is already ruined. Take away the rental income and you take away the incentive to file BK, right? That was my line of reasoning in getting the assignment of rents.

Once we got the assignment of rents, our receiver/property manager started collecting rents for us in Jan, 2021. It was nice to start receiving payments for a change!

We waited until Sheriff's Sales resumed and set the first sale that we could. In NJ, the borrower is allowed to postpone the sale for 30 days. He can do that up to 2 times and there's nothing you can do to stop it. 

This borrower postponed the sale twice. I assume that he did it just because he could and maybe he hoped something might happen that would stop the process. 

The property sold to a 3rd party bidder and we just received our net proceeds yesterday. Very happy with how this deal turned out!

If we didn't get the assignment of rents, I'm sure that we'd be filing a proof of claim for the borrower's instant BK case and would be waiting 6 months to a year to get relief before the borrower filed a 2nd BK.

Being able to foreclose in a timely manner far outweighed the little effort needed to get the assignment of rents. Collecting rent checks was pure, delicious gravy.