Assignment of Rent

[frogger]

In our investment properties, there is a clause that is an assignment of rent to the bank.

From what research I have done, it appears that I must be in "default" before this can be done. Will the bank be required to give me the 30 day notification that I am in default before they can attempt to take control of the rents?

If so, will bk put an automatic stay on their attempts?

Or, can the banks just notify the tenants on the 1st of the month that all payments should go to them instead of me?

[HHM]

The automatic stay should prevent this from happening.

[justbroke]

Not only should the automatic stay prevent this, I, personally, haven't seen where any bank has exercised this clause. I can certainly see it with single-asset businesses or big-time multi-unit apartment owners... I just haven't seen it at "my" level.

[frogger]

It appears that they could exercise, but from what I have found, the debt must be in default.

When you rent out a mortgaged property, you may have to sign over an Assignment of Rent agreement to the lender. By doing so, you authorize the lender to collect rent on your behalf if you default on the mortgage.

The Assignment of Rent provides an additional security to the lender in case you default on the loan. The lender will use the Assignment of Rent only when you default on the loan. Through this agreement, he will be able to collect rent payments on your behalf till the end of the lease period and recover the unpaid loan balance. Any extra cash collected by the lender will be returned to you. Once the debt is fully paid off, the assignment of rent will become null and void.

http://www.investorwords.com/297/assignment_of_rents.html

Therefore, would they not be required to give the 30 day formal notice that they consider the note to be in default and call it due?

I'm planning my last 13 days before my new name becomes s.o.b.

[justbroke]

You would need to read your specific Note to see if the assignment is for default and what defines "default" in your Note. A default, for purposes of assignment, could be one missed payment. I think you would probably get a notice, but it's probably a "hey, we're doing this", not a "hey, you have 30 days". The Assignment clause stands on it's own.

In any event, underlying State non-bankruptcy law may affect this as well.

[frogger]

Thanks!

[DeadManCrawling]

Believe it or not, we had an HOA try to force this issue. The home is a rental located a couple hours away, and we honestly forgot to pay the HOA fee for ONE quarter. Before we knew it the legal costs charged and the whole cost made it over a grand. It started as a couple hundred bucks.

Not really related to your bank issue, but interesting that an HOA asked court for assignment of rent to pay the HOA fee. We took care of it before it got to court, but I had no idea they could even attempt this.

[justbroke]

Not really related to your bank issue, but interesting that an HOA asked court for assignment of rent to pay the HOA fee. We took care of it before it got to court, but I had no idea they could even attempt this.

You really need to read your HOA Riders more carefully. Almost all modern HOA Riders and HOA Convenants now include an "assignment of rents" clause!