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Guideline: ALTA Endorsement 37-06 (Assignment of Rents or Leases) (12-3-12)

Organizational guidelines, explanation:.

This endorsement insures against: (a) any defect in the execution of an assignment of rents or leases document, or (b) any assignment of the lessor's interest in any lease or any assignment of rents affecting the Title and recorded in the Public Records at Date of Policy other than as set forth in any instrument referred to in Schedule B.

Underwriting Requirements:

1. Confirm that the assignment of rents and/or leases document is duly authorized and executed and acknowledged by the assignor (the mortgagor). 

2. Confirm that the assignor (the mortgagor) is a validly existing entity in good standing. 

3. Insert the title of the assignment of rents and/or leases document in section 2.a of the endorsement. 

4. The assignment of rents and/or leases document must be recorded. The commitment and policy should show the assignment of rents and/or leases document in Schedule B.  

5. This endorsement contains a bracketed option – Part II – of Schedule B, which is used for subordinate matters, where applicable. 

6. If the assignment of rents and/or leases provision is contained solely in the Insured Mortgage, modify Section 2.a of the endorsement to refer to the Insured Mortgage shown on Schedule A. 

7. Review all recorded documents for assignments of rents and/or leases. Schedule B should show as exceptions all documents that contain assignments of rents and/or leases, including mortgages or deeds of trust containing assignment of rents and/or leases provisions. It is not necessary to specifically identify the assignment of rents and/or leases aspect in the exception, nor is it necessary to create an additional, separate exception specifying the assignment of rents and/or leases aspect.

Any revision to this form requires approval of a Stewart Title Guaranty Company underwriter. The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability. Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.

• ALTA Endorsement 37-06 (Assignment of Rents or Leases) (12-3-12)
• NJRB 5-155 ALTA Endorsement 37-06 (Assignment of Rents or Leases)
• OTIRO Endorsement No. 237-06 Assignment of Rents or Leases

Assignment of Rents – What, Why, and How?

Article by:

Madelaine prescott, esq., share this post:.

• November 29, 2023

These days, almost all commercial loans include an Assignment of Rents as part of the Deed of Trust or Mortgage. But what is an Assignment of Rents, why is this such an important tool, and how are they enforced?

An Assignment of Rents (“AOR”) is used to grant the lender on a transaction a security interest in existing and future leases, rents, issues, or profits generated by the secured property, including cash proceeds, in the event a borrower defaults on their loan. The lender can use the AOR to step in and directly collect rental payments made by the tenant. For an AOR to be effective, the lender’s interest must be perfected, which has a few fairly simple requirements. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. Including an AOR in the recorded Deed of Trust or Mortgage is the easiest and most common way to ensure the AOR meets these requirements should it ever need to be utilized.

When a borrower defaults, lenders can take advantage of AORs as an alternative to foreclosure to recoup their investment. With a shorter timeline and significantly lower costs, it is certainly an attractive option for lenders looking to get defaulted borrowers back on track with payments, without the potential of having to take back a property and attempting to either manage it or sell it in hopes of getting your money back out of the property. AORs can be a quick and easy way for the lender to get profits generated by the property with the goal of bringing the borrower out of default. But lenders should carefully monitor how much is owed versus how much has been collected. If the AOR generates enough funds so that the borrower is no longer in default, the lender must stop collecting rents generated by the property.

Enforcement of an AOR can also incentivize borrowers to work with the lender to formulate a plan, as many borrowers rely on rental income to cover expenses related to the property or their businesses. Borrowers are generally more willing to come to the table and negotiate a mutual, amicable resolution with the lender in order to protect their own investment. A word of warning to lenders though: since rental income is frequently used to pay expenses on the property, such as the property manager, maintenance, taxes, and other expenses, the lender needs to ensure they do not unintentionally hurt the value of the property by letting these important expenses fall behind. This may hurt the lender’s investment as well, as the property value could suffer, liens could be placed on the property, or the property may fall into disrepair if not properly maintained. It is also important for lenders to be aware of the statutes surrounding the payment of these expenses when an AOR is being used, as some state’s statutes require the lender to pay certain property expenses out of the collected rents if requested by the borrower.

In addition to being shorter and cheaper than foreclosure, AORs can be much easier to enforce. In California, the enforcement of an AOR is governed by California Civil Code §2938. This statute specifies enforcement methods lenders can use and restrictions on use of these funds by the lender, among other things. Under CA Civil Code §2938(c), there are 4 ways to enforce an AOR:

• The appointment of a receiver;
• Obtaining possession of the rents, issues, profits;
• Delivery to tenant of a written demand for turnover of rents, issues, and profits in the correct form; or
• Delivery to assignor of a written demand for the rents, issues, or profits.

One or more of these methods can be used to enforce an AOR. First, a receiver can be appointed by the court, and granted specific powers related to the AOR such as managing the property and collecting rents. They can have additional powers though; it just depends on what the court orders. This is not the simplest or easiest option as it requires court involvement, but this is used to enforce an AOR, especially when borrowers or tenants are uncooperative. Next is obtaining possession of the rents, issues, profits, which is exactly as it seems; lenders can simply obtain actual possession of these and apply the funds to the loan under their AOR.

The third and fourth options each require delivery of a written demand to certain parties, directing them to pay rent to the lender instead of to the landlord. Once the demand is made, the tenant pays their rent directly to the lender, who then applies the funds to the defaulted loan. These are both great pre-litigation options, with advantages over the first two enforcement methods since actual possession can be difficult to obtain and courts move slowly with high costs to litigate. The written demands require a specific form to follow called the “Demand To Pay Rent to Party Other Than Landlord”, as found at CA Civil Code §2938(k). There are other notice requirements to be followed here, so it is essential to consult with an experienced attorney if you are considering either of these options. California Civil Code §2938 specifically provides that none of the four enforcement methods violate California’s One Action Rule nor the Anti-Deficiency Rule, so lenders can confidently enforce their AORs using the above methods with peace of mind that they are not violating other California laws.

Whether you are looking to originate a new loan, or you are facing a default by your borrower, understanding what an Assignment of Rents is and how it operates can be extremely beneficial. Enforcing an AOR can be an easier option than foreclosure and can help promote a good relationship with your borrower when handled correctly. If you have any questions about AORs, or need further details on how to enforce them, Geraci is here to help.

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Assignment of Leases and Rents: Definition, Terms, Example

Jump to section, what is an assignment of leases and rents.

The assignment of leases and rents, also known as the assignment of leases rents and profits, is a legal document that gives a mortgage lender right to any future profits that may come from leases and rents when a property owner defaults on their loan. This document is usually attached to a mortgage loan agreement.

Assignment of leases and rents allows lenders to a degree of financial protection in case a loan default occurs. This document is an agreement made between a borrower and a lender of mortgage loans. It often details an exact amount the lender will be entitled to if a default happens.

Common Sections in Assignments Of Leases And Rents

Below is a list of common sections included in Assignments Of Leases And Rents. These sections are linked to the below sample agreement for you to explore.

Assignment Of Leases And Rents Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.9 10 d368735dex109.htm ASSIGNMENT OF LEASES AND RENTS , Viewed October 4, 2021, View Source on SEC .

Who Helps With Assignments Of Leases And Rents?

Lawyers with backgrounds working on assignments of leases and rents work with clients to help. Do you need help with an assignment of leases and rents?

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Assignment Of Leases And Rents Lawyers

Valerie is a passionate attorney specializing in Employment Law, Family Law, and Business. With a strong foundation in the legal field, she is committed to helping individuals navigate the intricacies of their legal agreements. Valerie prioritizes open communication, ensuring her clients feel seen, understood, and confident as they make important decisions for their future. She is committed to empowering clients to become the best version of themselves while addressing their unique needs throughout the process.

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I am a lawyer in Glendale, Arizona. I have practiced in contract work including buy/sell agreements, contracts for the purchase of goods and services and real estate. I also practice in bankruptcy law and sports and entertainment law.

Gregory S. Davis is a native of New York and is a graduate of the Norman Adrian Wiggins School of Law at Campbell University. He also holds an undergraduate degree in Economics from the Wharton School at the University of Pennsylvania and an MBA from Bowie State University. Prior to entering the practice of law, Greg was a Trust officer for one of the largest U.S. Banks, an adjunct professor of finance at Meredith College and a Series 7 licensed financial advisor. Greg is currently the owner of The Law Office of Gregory S. Davis, PLLC (gsdavislaw.com) focusing on Estate Planning, Real Estate and Business Law. Greg is also an adjunct professor of Business Law at Wake Tech.

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Assignment of Rents – What, Why, and How?

Let’s dive into a playbook every seasoned investor and lender should have at their fingertips: the Assignment of Rents (AOR). It’s like having a backup quarterback ready to take the field when the starter falters. Almost every commercial loan today includes an AOR as part of the Deed of Trust or Mortgage. But what exactly is an AOR, why is it such a powerful tool in your arsenal, and how do you enforce it when the time comes?

What is an Assignment of Rents?

Imagine this: You’re the coach of a football team. The game plan is solid, but suddenly, your star player—your borrower—gets sacked by financial trouble. What do you do? You activate your secret weapon: the Assignment of Rents.

An AOR is like a security blanket for lenders. It grants the lender a security interest in the income generated by the property—leases, rents, profits—essentially all the cash flow that property produces. If the borrower defaults, the lender can step in and collect those rent payments directly from the tenants. But, for this play to work, the lender’s interest needs to be perfected. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. The simplest way to cover all bases? Include the AOR in the recorded Deed of Trust or Mortgage.

Why is an AOR So Important?

When your borrower fumbles and defaults on the loan, foreclosure isn’t always the best option. It’s like throwing a Hail Mary—high risk, high cost, and a long wait. But with an AOR, you’ve got a shorter timeline and lower costs. It’s a quick way to get back on track without taking ownership of the property, managing it, or going through the hassle of trying to sell it just to recoup your investment.

Think of the AOR as a way to get back into the game quickly. It lets you tap into the property’s cash flow, helping you recover funds and potentially bringing the borrower out of default. But here’s the kicker: you’ve got to keep an eye on how much you’re collecting. If the borrower’s debt is cleared, you stop collecting. Simple as that.

How Does Enforcement Work?

Enforcing an AOR is like calling the right play at the right time. It can even motivate the borrower to come to the table and work out a deal, especially if they rely on that rental income to cover their own expenses. Most borrowers won’t want to risk losing that income stream, so they’re more likely to negotiate and protect their investment.

But, just like any good coach, you’ve got to be careful. That rental income often covers essential expenses—property management, maintenance, taxes. If those bills fall behind, the property value could take a hit, liens could pile up, or the property could fall into disrepair. That’s bad news for everyone. Also, know the rules of the game—some states require the lender to pay certain property expenses out of the collected rents if the borrower requests it.

California’s Game Plan for AOR Enforcement

In the golden state of California, enforcing an AOR is all about strategy. California Civil Code §2938 lays out four ways to enforce an AOR:

• Appointing a Receiver: Think of this as bringing in a new head coach to take over the team. A court-appointed receiver manages the property, collects rents, and ensures the playbook is followed. It’s not the easiest option since it involves the courts, but it’s effective, especially when borrowers or tenants aren’t playing ball.
• Obtaining Possession of Rents: This is like intercepting the ball. The lender takes actual possession of the rents and applies them directly to the loan.
• Delivering a Written Demand to the Tenant: Sometimes, a simple written demand to the tenant is all it takes to redirect the rental payments from the borrower to the lender. It’s a pre-litigation option that avoids the high costs and slow pace of court proceedings.
• Delivering a Written Demand to the Assignor: Similar to the third option, but this time, the demand is sent to the borrower, instructing them to hand over the rental income.

These options allow you to enforce your AOR without running afoul of California’s One Action Rule or the Anti-Deficiency Rule. It’s a strategic way to keep the ball in your court and score a win for your investment.

Conclusion: Keep the Playbook Handy

Whether you’re gearing up to originate a new loan or dealing with a borrower’s default, knowing the ins and outs of an Assignment of Rents is crucial. It’s your go-to play when foreclosure isn’t the best option. And when executed correctly, it can even foster a better relationship with your borrower. Remember, just like in football, it’s not just about the big plays—it’s about knowing when to call the right one.

Daniel Zabala, MBA, MSF

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Assignment of Rents in Residential Real Estate Transactions

When discussing a mortgage product with your broker, you will be required to disclose certain information so that the mortgage may be crafted in accordance with your specific needs. As part of this task, you will be required to disclose whether the property will be your primary residence or an investment. Where borrowers own a property that is or may be leased in the future, most lenders will require that either a general assignment of rents or a specific assignment of rents be secured against the borrower’s property in addition to the secured mortgage.

In most cases, lenders will have borrowers execute the general or specific assignment of rents in a form of a separate document however, some lenders choose to incorporate an assignment of rents clause within the mortgage agreement itself. Even if the mortgage document is silent about assigning rents, the lender’s right to receive rental income will be inserted into the mortgage as incidents of ownership (the retainment of the right to collect rent). Both the general and specific assignment of rents provide a degree of financial protection for a lender as both entitle them to collect rental income from the borrower’s tenant(s) if the borrower defaults on the mortgage.

The specific assignment of rents applies where the lender is only interested in a specific lease(s). This arrangement may be appropriate in situations where a property has one tenant under a long-term lease or where multiple lenders are taking security in a particular property and wish to divide specific leases and income derived from each. Once such a lease(s) expires or terminates, the lender will no longer be entitled to any rental income from subsequent new leases.

On the opposite end of the spectrum is the general assignment of rents . Once implemented, not only does it give the lender the right to rental income from current or future tenants and leases but it also provides the lender with the ability to exercise all of the rights of a landlord under any prevailing or new leases, assignments, or subleases. This type of arrangement is a more popular choice with lenders as it provides synoptic security.

Like a mortgage, both general and specific assignment of rents are usually registered against title to a property as a notice under s. 78 of the Land Titles Act [1] .

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me at [email protected] .

[1] R.S.O. 1990, c. L.5

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Assignment of Rents & Leases

Assignment of rents and leases in business and real estate transactions.

An “Assignment of Rents and Leases” is a crucial legal instrument that significantly impacts commercial and residential real estate, and mergers and acquisitions of real estate. Having a properly drafted and executed assignment means the rights and assets that are transferred give the new party (the assignee) the right to receive payments.

What is an assignment of rents and leases?

An assignment of rents and leases is a legal agreement in which the individual or company entitled to receive payments transfers that right to another party. Most often, this occurs (1) when a property owner hires a property manager, or (2) in acquisitions, such as a property management company selling their accounts to another property management company or a commercial landlord selling their portfolio to a buyer.

How is an assignment of rents and leases used?

This arrangement is often utilized in business sales, account sales, financing, and investment transactions as a means of securing debt or protecting the interests of the lender or property owner.

In the financing context, an assignment often grants the lender or assignee the authority to collect and apply the rents from the property should the borrower default on their loan; this is important when the borrower collateralizes real estate in order to receive the loan. In a property management context, an assignment often serves to effectively transfer management rights to the new company.

An assignment of rents and leases is probably most commonly used in a commercial real estate context when there is a sale of a commercial property, or in the residential real estate context when there is a change in property managers.

What terms should be included in an assignment of rents and leases?

Certain components should be included in a proper assignment. Here are a few of the foundational terms for an assignment of rents and leases:

• Parties. All parties should be clearly identified and defined. This can include the borrower, lender, assignee, assignor, successor, etc.
• Property description. The real estate parcel(s) involved in the assignment should be described by legal description, street address, and more.
• Lease terms, rents, and disclosures. The actual lease agreements that are being transferred to the new landlord, property manager, lender, etc. should be provided to the assignor/successor, along with an easy-to-read schedule of rents and other crucial details per parcel or premises.
• Rights and obligations. Each party should have their rules, permissions, and contractual rights and obligations outlined in the assignment language. The rights and obligations of each stakeholder will be widely varied based on the needs and financial position of each party, the existing leases being assigned, and the specifics of the subject properties.

Best Commercial Real Estate Attorneys in Oklahoma

It is crucial to engage an attorney with experience in properly negotiating, drafting, and executing assignments of rents and leases. They can guide you through the process, ensuring that the assignment is tailored to your specific needs and complies with all relevant legal requirements. The attorneys of Avenue Legal Group have the experience you need and want in your transaction. Contact our firm to discuss your transaction, assignment of rents and leases, or other real estate documentation.

Looking for local counsel in Oklahoma for your commercial real estate transaction? Our firm frequently works with attorneys, investors, and lenders from outside the state. Contact us by call, text, email, or website submission to discuss your matter.

Other helpful information:

• Commercial Real Estate Transactions in Oklahoma
• Due Diligence in Oklahoma Real Estate Transactions
• Essential Terms for Every Commercial Lease
• Attorney for Real Estate Contract Review
• Estate Planning
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What is an Assignment of Rents?

An assignment of rents and leases is an agreement between the owner of a particular property and a designated second party. The terms and conditions allow that second party to collect any rental payments paid by tenants and to manage that property for a period of time. This type of arrangement is most commonly utilized to settle a loan or some sort of credit extended by the second party to the property owner, and remains in effect until the debt is settled in full.

For the duration of the assignment of rents, the property owner remains the owner of record for the property. There is no transfer of title, although the lender is usually given the privilege of managing the property as he or she sees fit. This means that for the duration of the agreement, the lender can use part of the collected proceeds to maintain the property, while applying the remainder of the collected rent payments toward the outstanding balance of the loan amount.

Choosing to create an assignment of rents usually takes place because the property owner is in need of a quick infusion of resources for some reason. Rather than going with a loan and simply using the property as collateral , the assignment of rents effectively allows the property owner to borrow against future income, which is realized as tenants make regular rental payments. As with any type of loan situation, there is a rate of interest applied to the outstanding balance, with a portion of each month’s proceeds going to retire a part of the principle as well as some of the interest due.

The benefit to the property owner is that loans with this stipulation often carry very competitive rates of interest. This means that over the life of the loan, the owner is likely to pay much less interest on the loan installments. Since an assignment of rents can easily be structured between two individuals, there is also the advantage of not having to go through a bank or mortgage company at all. If the property owner can find an angel lender who is willing to advance money now and receive payments back from the rental proceeds each month, the paperwork is kept to a minimum, and the owner can receive the advance of funds almost immediately.

It is not unusual for an assignment of rents to also contain clauses that protect the interests of both the property owner and the lender. These provisions give the lender protection in the event that the collected rentals slip below a certain point due to vacancies. At the same time, the owner is protected from the lender attempting to gain ownership of the property as long as the monthly payments amount to a minimum figure.

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Assignment of Rents/Leases Endorsement – (TLTA T-27)

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