Town Center's Impact On Real Estate Lenders And Borrowers

By Dov Kleiner (June 28, 2017, 4:05 PM EDT) -- A recent Sixth Circuit decision holds that a mortgage lender that has taken appropriate steps to perfect an assignment of rents is protected if its borrower files a bankruptcy petition, as the rents are considered property of the lender and not property of the debtor's estate. In re Town Center Flats LLC (Case No. 16-1812)(6th Cir. May 2, 2017). This decision has been justly celebrated by real estate lenders who hope to rely on the full benefit of their bargained for assignment of rents as it prevents a borrower from using the rents to fund a bankruptcy case until title to the property is resolved. Unfortunately, the comfort provided by the Town Center case is not so universal. In that instance, the holding was dependent on the subject property being in a "title theory" state (Michigan, in the case). In other jurisdictions, which are "lien theory" states, lenders may be less well off....

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