RECEIVERSHIP & ASSIGNMENT OF RENTS LITIGATION
Although receiver ships often represent a product of commercial foreclosure in the state of Florida, they also maintain applicability in partnership disputes and other forms of litigation.
Appointing a receiver is relatively expensive. However, this can serve as a valuable tool for mortgage holders in Florida. Receivership prevents the derivative waste from secured collateral.
Largely governed by common law, the ability to obtain a receiver is primarily determined by specific details concerning a case.
For example, if a commercial mortgagor is committing waster, or otherwise jeopardizing collateralized property. In this instance, a lender could possess sufficient grounds to petition the court for a receiver.
Enacting this method seems cost prohibitive in the short term. However, it can inevitably save a significant amount of money in the long-term.
A vast majority of commercial mortgages in Florida contain an “assignment of rents” provision in their stipulations. Although the standard commercial language is unsurprisingly in favor of the drafter (the bank or financial institution), Florida Statute 679.07 sets forth some restrictions for a lender’s enforcement of an assignment of rents provision in a mortgage.
Primarily, the statute distinguishes between the sequestration of rents (679.07(3)) and the turnover of rents (679.07(4)). Sequestration of rents involves the mortgagor (borrower) turning the rents enjoyed from a commercial property over to the registry of the court or another custodial account the Court sees fit.
The statute provides great leeway to a trial court in whether to compel sequestration of the rents. With very little case law governing the interpretation of (679.07(3)), a trial judge is ostensibly deference by an appellate court in determining whether sequestration of rents is appropriate.
What is Receivership and Assignment of Rents?
Receivership is a type of corporate bankruptcy where a bankruptcy court or creditor appoints a receiver to run the company. This can take place during private proceedings, or instated by a governing entity. In most cases, this receiver possesses the full decision-making powers as well as full discretion regarding asset management.
A receivership is most often enacted as an attempt to review a company that is failing. This individual or entity works to restructure the company and improve the situation by helping manage their assets and obligations. Ideally, they meet these obligations as necessary and bring the company into a recovery period.
Assignment of rent is a document that enables a lender to collect rent when a borrower defaults on a mortgage. This document protects the lender as otherwise, the property owner can continue collecting revenues even if they stop paying their mortgage.
In many cases, assignment of rent is a full independent document. Sometimes, however, it is a clause of the mortgage as a whole. Assignment of rents is null and voice should the borrower satisfy the mortgage. Assignment of rents is more common in commercial properties than residential.
Governed by Florida Law
Unlike many states, Florida wields a statute that governs the assignment of rents provisions. Fla. Stat. § 697.07 states that an assignment of rents provision may set forth within a mortgage or separate instrument.
This statute clearly outlines that an assignment of rents provision acts as security for repayment, as well as that the borrower holds a lien on the rents. This Florida law is clear that even if a mortgage contains an assignment of rents provision, title to rents does not pass to the borrower on the execution of the mortgage.
When a creditor takes a mortgage on a rental property regardless if this property is residential or commercial or industrial, this entity possesses no protected interest in the income from that property in the event that the borrower defaults on the mortgage.
Generally, the creditor instates a separate assignment of rents from the debtor. This provides a direct right to the payments to the lender if a default occurs. Nevertheless, even in this circumstance, the right to payment is uncertain against competing creditors.
TRUSTED COMMERCIAL LITIGATION LAWYER – Business Lawyers in Miami
At the Law Offices of Paul A. Humbert, P.L., our business lawyers in Miami often litigate complicated receivership and assignment of rents issues in numerous cases. We can provide guidance on how to effectively utilize these tools in order to maximize recovery and mitigate risks to your collateral as a secured lender.
It is a prudent idea in these cases to contact a qualified attorney like those practicing at the Law Offices of Paul A. Humbert, P.L. Attorney Paul A. Humbert, Esq. founded the Law Offices of Paul A. Humbert P.L. four years ago.
Paul began in private practice after working for a substantial commercial litigation law firm in Miami. He established himself as a reliable attorney for a variety of small, moderate, and larger clients.
Our attorneys employ every tool at their disposal while exhausting every possible resource to ensure we handle your case optimally. We act as advocates on your behalf in every situation, regardless if this takes place in the courtroom, or at the litigating table.
For more information about how we can help you with receivership & assignment of rents, contact the Law Offices of Paul A. Humbert, P.L. today. Our attorneys want to work for you and ensure an optimal negotiating process.
Paul is licensed to practice law in the following courts:
- Florida State Court
- Florida Southern District of Florida Federal Court
- Southern District of Florida Bankruptcy Court
- Florida Middle District of Florida Federal Court
- Middle District of Florida Bankruptcy Court
- United States Eleventh Circuit Court of Appeals