Still Crazy after All These Years: The Absolute Assignment of Rents in Mortgage Loan Transactions

Abstract

This Article explores the problems caused by the absolute assignment of rents in mortgage loan transactions, which have continued for more than a century, and discusses possible solutions. Rents are a significant part of the security for loans secured by income-producing properties such as office buildings, shopping centers, and apartments. Under present law in many states, the absolute assignment of rents is the only means by which lenders can create an effective security interest in the rents of mortgaged property. An absolute assignment of rents purports to transfer title to rents to the mortgage lender, although in substance it creates a security interest in rents. This Article explores the historical development of the absolute assignment of rents and discusses the confusion, unnecessary litigation, and in some cases, injustice that it causes under state law and federal bankruptcy law. The National Conference of Commissioners on Uniform State Laws has recently approved the new Uniform Assignment of Rents Act, which removes the necessity for absolute assignments of rents by creating a workable and comprehensive scheme for the creation of security interests in rents. This Article concludes by discussing the Act and recommending its adoption.

Keywords: Uniform Assignment of Rents Act, Commercial real estate, Income-producing property, Rents, Assignment of rents, Rents as security, Mortgages, Mortgage loan, Bankruptcy law, Absolute assignment, Absolute assignment of rents, Pledge, Pledge of rents, Real estate finance, Real property law