Assignment of Rents for Security

An assignment of rents serving as collateral for a debt, as opposed to an absolute assignment of rents. A split has developed among the courts. Some courts have decided that any assignment that is revocable upon full payment of the debt to the lender is necessarily an assignment “for security” even if the agreement is phrased in absolute assignment language. Other courts have ruled that if an assignment is fashioned as “absolute,” with a debtor holding a mere license to collect and make use of rents prior to an event of default, the form of assignment is enforceable, including in bankruptcy. The latter interpretation has resulted in the rents not being property of the estate, severely limiting a Chapter 11 debtor’s ability to reorganize.

Bankruptcy Code § 363. See also Absolute Assignment of Rents, Adequate Protection, Assignment of Rents, Butner Case, Cash Collateral, Use of Cash Collateral.

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