Steps Required for an Assignment of Rents

Michigan law permits borrowers to assign rents from their commercial and industrial properties (other apartments with less than six units and family residences) to their lenders as security for their loan. The lender, however, may only collect the rents after the occurrence of the following events:

  1. Borrower and lender must execute a contract which assigns the borrowers rents, from the mortgaged property, to the lender in the event of a default;
  2. Lender must record the assignment of rents with the register of deeds (this effectively perfects the lender’s security interest in the future rents);
  3. Borrower must default under the mortgage before the lender has a right to collect the rents;
  4. Lender must record the notice of default;
  5. Lender must serve the recorded notice of default and the instrument creating the assignment of rents upon the tenants.

In re Mount Pleasant Ltd. P'ship, 144 B.R. 727, 733 (Bankr. W.D. Mich. 1992). Once these events have occurred the lender may collect the rents from the borrower’s tenants. This right to collect rents even survives a bankruptcy petition by the borrow. Id. at 732, 737-38; 11 U.S.C. § 552(b).

For assistance with assignment of rents, please contact us.

Categories: Real Estate Law