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Volume XII, Number 230

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Foreclosure Does Not Extinguish Assignment of Rents

Previously, we alerted you that Michigan had passed its version of the Uniform Assignment of Rents Act (MUARA). Among other things, this law clarifies that an assignment of rents is not extinguished by a foreclosure sale itself, but instead terminates either at the end of the redemption period or when the property is redeemed.

Before the MUARA, this was not clear. On the one hand, some cases suggested that an assignment of rents continued at least to the end of the redemption period. For example, a strict reading of Security Trust Co v Sloman suggests that an assignment of rents continues until the debt is paid in full or the redemption period expires without a redemption—meaning it might continue if there is a redemption.[1] On the other hand, others—such as dictum in Dunitz v Woodford Apartments Co[2] stating that “foreclosure of a mortgage extinguishes it”—suggest that the mortgage as a whole, including any assignment of rents it contains, might be extinguished by a foreclosure sale itself. Unless a separate instrument was recorded embodying an assignment of rents, this could allow a foreclosed commercial owner to collect rents for months before the purchaser at the foreclosure sale could step in. Unsurprisingly, this confusion has led to conflicting decisions by different courts.

The MUARA resolves this uncertainty. Now, an assignment of rents automatically terminates when either (i) the redemption period expires, or (ii) an earlier redemption occurs.[3] Moreover, if a third party submits the winning bid at a foreclosure sale, the assignment of rents transfers to it “to the extent of the remaining secured obligation” by operation of law, regardless of what the foreclosure notice says.[4] These important clarifications add certainty to an ambiguous area of law that can have a real financial impact.



ENDNOTES

[1] 252 Mich. 266; 233 N.W. 216 (1930).

[2] 236 Mich. 45, 49; 209 N.W. 809 (1926). 

[3] Public Act No. 155 of 2022. The MUARA takes effect September 22, 2022.

[4] Id. § 4(4)(a).

© 2022 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XII, Number 180
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About this Author

Scott R. Lesser Real Estate Attorney Miller Canfield
Principal

As a leader on Miller Canfield's highly experienced Commercial Real Estate Workout Team, Scott uses his knowledge and expertise to avoid and resolve his clients' concerns before they develop into true issues. Although this often means employing creative strategies to amicably resolve disputes in a way that serves his clients' underlying business purpose, Scott does not shy away from receivership, foreclosure, guaranty or other litigation actions when appropriate.

Scott prides himself on guiding his clients and fellow practitioners alike to practical solutions to distressed real...

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Gergana Sivrieva Real Estate Attorney Troy  Michigan Miller Canfield
Associate

Gergana Sivrieva is an associate in Miller Canfield's Real Estate Group. Gergana assists a broad range of clients in a variety of commercial real estate transactions, with a focus on workouts and foreclosures, commercial leasing, and acquisitions and dispositions. Prior to joining Miller Canfield, Gergana worked as a judicial intern for the Honorable Bernard A. Friedman at the U.S. District Court for the Eastern District of Michigan and was a Research Assistant for Law Professor Robert M. Ackerman. She is a graduate of Wayne State University Law School, where she was a...

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