Must a Lender Show Cause to Enforce an Assignment of Rents?

The Federal District Court for the Middle District of Florida ruled last month that a lender does not need to show cause as a condition to enforcing an assignment of rents. In PNC Bank v. Maranatha Properties, Inc., No. 5:15-cv-563-Oc-30PRL, 2016 WL 319255 (M.D. Fla. Jan. 26, 2016), PNC initiated a foreclosure of a mortgage on properties in Marion and Lake Counties, Florida that secured a $1,800,000 loan to Maranatha. In connection with the loan and mortgage on the properties, Maranatha also executed an Assignment of Rents and Leases providing for an unconditional assignment of leases, rents and profits derived from the properties in the event of a default. After Maranatha defaulted on the loan, PNC sought to enforce the Assignment of Rents under Florida Statute § 697.07. Maranatha argued that PNC could not enforce the assignment of rents because the value of the mortgaged properties was sufficient to satisfy the mortgage debt. In support of its argument, Maranatha relied on an opinion from the 4th DCA in which the court held that in determining whether to appoint a receiver where rents and profits have been pledged, a court may first consider whether the value of the mortgaged property alone would be sufficient to satisfy the mortgage debt. The District Court disagreed with Maranatha’s argument and held that an assignment of rents under Florida Statute § 697.07 is not analogous to the appointment of a receiver. The court further concluded that Maranatha had no legal basis for requiring PNC to show cause (beyond proof of default and satisfaction of the statutory requirements) before enforcing the Assignment of Rents. As such, PNC was allowed to enforce the Assignment of Rents regardless of the value of the mortgaged properties or its ability to satisfy the mortgage debt through foreclosure.

The case is a reminder that an assignment of rents is not merely an alternative available only after foreclosure options have been exhausted. It may be used simultaneously with foreclosure and could potentially aid in a faster recovery of the mortgage debt.