If the Landlord is the Borrower, an assignment of rents and leases is appropriate. The Bank’s real estate collateral includes rents and leases. Most Texas deed of trust forms include assignment of rents and leases provisions.
An assignment of rents creates a security interest in all accrued and unaccrued rents arising from the real property.
An assignment of rents does not reduce the secured obligation, except to the extent that the Bank actually collects the rents and applies (or is obligated to apply) the collected rents to the secured obligation.
Upon recordation in the County Real Property Records, the security interest in the rents is perfected and has priority over the rights of any subsequently acquired interest in the rents or the real property.
On default by the landlord/borrower, a Bank enforces the assignment by providing the Landlord notice demanding it pay over proceeds of any rents.
The Bank enforces the assignment by providing the Tenant notice demanding the Tenant pay the Bank all rents as they accrue. The Bank is not obligated to apply collected rents to payment of expenses of property; however, the Tenant’s continuing obligation to pay rents remains subject to:
•the terms of underlying lease
•any claims or defenses of Tenant against Landlord for non-performance
Enforcement of an assignment of rents, the application of proceeds, or turnover of rents to the Lender does not:
•Make the Bank a mortgagee-in-possession of RE
•Make the Bank an agent of Landlord
•Constitute an “election of remedies”
•Make the secured obligation unenforceable
•Limit the rights of the Bank with respect to obligation
•Bar a deficiency judgment.