CALIFORNIA - Payment Demand
Should Include Rents Demand

By Alan Steven Wolf of The Wolf Firm
(Network News May/June 1998)

The assignment of rents clause in the standard mortgage/deed of trust is a powerful yet under utilized weapon that can be employed in loss mitigation efforts. The clause allows a servicer to collect any rent that may be due after the initial default. The methodology for obtaining those rents is dependent upon the mortgagee-in-possession ramifications in each state.

LEGISLATION EASES COLLECTION

Generally speaking, it is not wise to collect rents without the appointment of a receiver; otherwise, the servicer may be construed as a mortgagee in possession and thus subject to liability for everything that happens on the property (generally, an uninsurable event since there is no ownership interest in the property). California has recently enacted legislation making the collection of post-default rents much easier. This legislation generally provides that direct attempts to collect rents do not make the servicer/lender a mortgagee in possession. (But beware, there are notable exceptions.) To take full advantage of this section, servicers need to add language to their collections letters demanding the rents, in addition to the demand for payments.

FAILURE TO DEMAND COSTS

The recent California case of Federal National Mortgage Association vs. Bugna puts this into perspective. In Bugna, a bankruptcy trustee was collecting rents from a property. The case was eventually dismissed and the lender then obtained the appointment of the receiver to collect the rents. The receiver demanded that the rents collected by the trustee prior to the receiver's appointment be turned over to the receiver instead of being released to the borrower. The state appellate court held for the borrower, determining that the lender had no rights to the rents prior to the appointment of the receiver because the lender had simply failed to make any demand for the rents. Had the lender simply demanded the rents at an earlier time, it is clear that the appellate court would have ruled to force the trustee to turn the earlier collected rents over to the receiver. Accordingly, if you are pursuing rents (and you should), the earlier the demand, the more money you can recover.

For further information please contact:

Alan Steven Wolf  
The Wolf Firm
A Law Corporation
18 Corporate Plaza Drive
Newport Beach, CA.
Tel: (949) 720-9200.
Fax: (949) 720-9250

The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking  industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.

This article is intended as a general discussion and should not be construed or used as legal advice or a legal opinion. Should you seek legal advice, you should consult with your own attorney.

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The Wolf Firm
A Professional Law Corporation
18 Corporate Plaza Drive
Newport Beach, California  92660
(949) 720-9200 Phone
(949) 720-9250 Fax

E-Mail us at Alan_Wolf@wolffirm.com

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