Assignment of Leases and Rents

Mortgages

When a Collateral Assignment of Leases and Rents is recorded along with a mortgage the question arises whether the document must be separately discharged in order to no longer affect the title, where the mortgage itself has in fact been discharged. In Eno and Hovey, Massachusetts Practice - Real Estate Law with Forms, West Publishing Co., (Third Edition, 1995), §9.17, it is stated:

Mortgagees commonly take, as additional security for mortgage loans, an assignment of leases and rents. This assignment formally entitles a mortgagee to collect rents but permits a mortgagor to do so until there is a default and notice by the mortgagee.

The assignment, being merely additional security for a mortgage, is automatically discharged upon a discharge of the mortgage.

Incidentally, the reason for and the importance of a Collateral Assignment of Leases and Rents with regard to the mortgagee and its rights and ability to collect rents in the even of a default under the mortgage is fully discussed in the case of HRPT Advisors, Inc. v. Macdonald, Levine, Jenkins & Co., P.C., 43 Mass.App.Ct. 613, 686 N.E.2d 203 (1997), wherein the court said:

The long standing general rule in Massachusetts is that entry by a mortgagee in possession under a mortgage granted prior to execution of a lease ousts the tenant and terminates the lease where the mortgagee asserts his paramount title qua mortgagee. [Citations omitted.] The relevant inquiry is not whether the mortgagee’s title is paramount, but rather whether the mortgagee has sought to exercise its superior possessory right over that of the tenant following the landlord’s default.

“It is not enough . . . that a third party has a paramount title; but to excuse the payment of rent, the [lessee or tenant] must have been ousted or evicted, under the title.” International Paper Co. v. Priscilla Co. [281 Mass 22 (1932)] at 29, quoting Morse v. Goddard, 13 Met. 177, 179 (1847). Nor is mere entry sufficient; to assert paramount title, a mortgagee must couple entry with demand for rent as mortgagee . . . .

In quoting from Schwartz, Lease Drafting in Massachusetts, the court said:

The mortgagee, by entry, may either cause the leases and his right to rents thereunder to terminate, if he demands rent, or, if he makes no demand upon the tenant, will leave the relationship of lessor and lessee undisturbed, with the result that the lessor alone will continue to have the right to receive rent. The mortgagee may avoid these undesirable alternatives by the simple process of acquiring the lessor’s interest under the leases and demanding rent from the lessee qua lessor and not as mortgagee. This may be accomplished through the medium of an assignment of the lessor’s interest in the leases or in the rents which may be effected at the time of execution of the mortgage.