Assignment of Rents (Residential)?

[Andy Mirza]

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)

[Andy Mirza]

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.