Many mortgage loan borrowers may not realize that their Mortgage contract contains an assignment of rents clause, particularly if the Mortgage is for a secondary property that is not the borrowers’ primary residence. Read through your Mortgage contract carefully to determine whether or not it contains an assignment of rents clause. If your Mortgage contract does contain an assignment of rents clause, and if you are actually renting the property and receiving rental income, you need to be aware of what the consequences of the assignment of rents clause entails should you default on your mortgage payments.
So long as you are current on your mortgage payments, the assignment of rents clause typically does not have any effect on you receiving rental income from renting the property to a tenant. If you default on your mortgage payments, however, the mortgage lender may ultimately be able to force you to hand over your tenant’s rental payments to the mortgage lender instead of you continuing to be able to keep the rental payments for yourself.
Section 697.07, Florida Statutes, governs the assignment of rents clauses in mortgages and the procedure for enforcing them. As set forth in that section of the Florida Statutes, if the mortgage borrower defaults on mortgage payments, the mortgage lender can issue a written demand to the mortgage borrower to turn over to the mortgage lender all rental payments currently in the mortgage borrower’s possession, as well as all future rental payments that the mortgage borrower collects from the tenant. If the mortgage borrower fails to comply with the mortgage lender’s written demand for turnover of the rental payments, the mortgage lender can file a foreclosure lawsuit against the mortgage borrower and request that the Court enter an order requiring the mortgage borrower to deposit any collected rental payments into a special account designated by the Court. If the mortgage lender requests that the Court enter such an order, the law provides that an expedited hearing may be held on the mortgage lender’s request, and the Court can enter the order requiring turnover of the rental payments at any time while the foreclosure lawsuit is still pending. The purpose behind this particular law is to protect the mortgage lender’s interest in the mortgaged property and to prevent the mortgage borrower from profiting from rental income while at the same time failing to make mortgage payments to the mortgage lender.
Regardless of whether your Mortgage contract contains an assignment of rents clause, if you are facing foreclosure of your property, we welcome the opportunity to meet with you during a free consultation to discuss what options you may have. For more information about foreclosure defense, just contact us to see how we may be able to help you.