Michigan passes its version of the Uniform Assignment of Rents Act | Miller Canfield

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In May 2017, we highlighted the opinion of the Sixth Circuit in apartments in the city center. Briefly, Town Center Flats believed that title to the leases of a commercial property would transfer to a lender when (1) a commercial loan was secured by a registered assignment of the leases, (2) the borrower defaulted on its payments, and (3) ) a lender follows Michigan’s statutory process to enforce rent assignment. A bankruptcy court subsequently ruled that tenants do not need to receive a notice of default from the borrower in order for the property to be transferred.[1] Without the rents as part of the bankruptcy estate, some borrowers would not be able to finance bankruptcy proceedings.

On June 24, 2022, the legislature changed that by enacting the Michigan Uniform Assignment of Rents Act (MUARA).[2] MUARA protects lenders by making it clear that an assignment of rents is an accomplished security right once recorded. It changes the result to Apartments in the city centerhowever, by confirming that an assignment of rent will not be transferred Property of rent to a lender, no matter how the loan documents are worded. When a borrower files for bankruptcy protection under MUARA, the rents are owned by the bankruptcy estate and may help pay the bankruptcy case — if the borrower either obtains the lender’s permission or demonstrates that the lender’s security interest in the rents is adequately protected of course.

MUARA significantly expands Michigan law, clarifies numerous other ambiguities, and amends the Uniform Assignment of Rents Act (UARA) (on which MUARA is based) to harmonize it with Michigan practice.[3] For example, under the UARA, any commercial mortgage automatically creates a lease assignment unless the mortgage provides otherwise; Under MUARA, a lease assignment is created only when a mortgage or separate agreement provides for one.

Because MUARA significantly impacts the borrower-lender relationship, Miller Canfield will publish a series of articles focused on it.

[1] Regarding Skymark Properties II, LLC597 BR 363 (Bankr. ED Mich. 2019).

[2] Public Law No. 155 of 2022. The MUARA will come into effect on September 22, 2022.

[3] The Uniform Law Commission proposes laws that cover a variety of topics and urges states to adopt them to create uniform legal expectations across the United States. The Uniform Commercial Code is a well-known example of legislation recommended by the ULC in conjunction with the American Law Institute.

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