Friday, September 30, 2011

Texas Adopts Assignment of Rents Act

On June 17, 2011, Texas Governor Rick Perry signed into law the Texas Assignment of Rents Act (TARA).  Dubbed the "most significant finance-related bill" of the 82nd Texas Legislature's last session in the Texas Bar Journal's Legislative Update, the TARA clarifies some ambiguous case law regarding the status of assignment of rents. 

The TARA should benefit both creditors and borrowers in Texas by making assignments of rents in Texas much simpler and more straightforward.  Under the new law, every deed of trust, mortgage, or other instrument evidencing a lien against real property in Texas (with certain exceptions) includes a collateral assignment of rents to such real property unless otherwise stated in the instrument itself.  Such assignment of rents creates a presently effective security interest in all accrued and unaccrued rents arising from the real property, which security interest is separate and distinct from any security interest in the real property itself.  The security interest in the rents is perfected upon filing in the county in which the real property is located.

The TARA, codified as a new Chapter 64 of the Texas Property Code, was inspired by the Uniform Assignment of Rents Act (UARA), which was written by the National Conference of Commissioners of Uniform State Laws.  The TARA is much shorter than the UARA and more tailored to Texas property law concepts generally, however.

I won't get into the history of assignment of rent case law, which involves, among other things, a 1981 Texas Supreme Court case, absolute vs. collateral assignment of rents, bankruptcy law, and the pro tanto reduction concept.  A good capsule summary of these issues was provided in the TARA's Sponsor's Statement of Intent, which is available here:
Luckily, thanks to the TARA, Texas lenders no longer need to worry about many of these issues that once complicated assignments of rents in Texas.

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