May 2014

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A recent bankruptcy decision from a New Jersey Bankruptcy Court (In re Surma, 504 B.R. 770 (Bankr. D.N.J. 2014)) has once again drawn attention to the effect assignment of rents provisions in mortgages can have, depending on which state’s law governs.  In Surma, the court interpreted an absolute assignment of rents provision contained in a mortgage in light of the interplay between New Jersey state law and the Bankruptcy Code. The court held that because under New Jersey law an absolute assignment of rents passes title to the rents to the assignee, rents generated by property owned by the debtor were property of the lender. Therefore, the rents were not available to fund the debtor’s chapter 11 bankruptcy plan. (more…)