ASSIGNMENT OF RENTS Meaning and
Definition
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The term "assignment of rents" refers to a legal arrangement in which a property owner transfers the right to receive rental income from a property to another party, typically a lender or a third-party investor. This assignment is often used as a collateral or security measure in real estate transactions, particularly in cases where the property owner seeks financing or borrows money against the value of the property.
In an assignment of rents, the property owner, known as the assignor, agrees to redirect and assign any future rental income from the property to the assignee, who is usually the lender or the investor. This transfer of the right to collect rents ensures that the assignee will have a source of income to cover their investment if the property owner defaults on the loan or fails to fulfill their financial obligations.
Moreover, the assignment of rents typically includes a provision that grants the assignee the power to take over the collection of rents directly from tenants in the event of default. The assignor, in turn, often must notify tenants of this assignment and direct them to make rental payments to the assignee instead.
This arrangement aims to protect the assignee's interests by providing a steady stream of income to offset any potential losses associated with the default or non-payment. Additionally, it enables the assignee to exercise greater control over the property and its rental operations in order to protect their investment and ensure the timely repayment of the loan.
