michigan uniform assignment of rents act

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog

2022 Michigan Compiled Laws Chapter 554 - Real and Personal Property Act 115 of 2022 - Michigan Uniform Assignment of Rents Act (554.1051 - 554.1070)

History: 2022, Act 115, Eff. Sept. 22, 2022

• Section 554.1051 - Short Title.
• Section 554.1052 - Definitions.
• Section 554.1053 - Assignment; Notification; Method; Proper Address Rules.
• Section 554.1054 - Assignment of Rents; Enforceable Security Interest; Discharge; Foreclosure; Applicability.
• Section 554.1055 - Recording With Register of Deeds; Perfected Security Interest; Priority.
• Section 554.1056 - Assignment Enforcement Methods.
• Section 554.1057 - Appointment of Receiver; Petition; Priority of Receivers.
• Section 554.1058 - Demand Notice to Assignor for Collection of Rents; Notification Requirements.
• Section 554.1059 - Demand Notice to Tenant for Payment of Rents; Notification Requirements.
• Section 554.1060 - Notification to Pay Rents to Person Other Than Landlord; Form.
• Section 554.1061 - Effect of Enforcement of Assignments of Rent.
• Section 554.1062 - Collection of Rent Proceeds; Use of Funds.
• Section 554.1063 - Exception for Use of Collection of Rents; Protection of Rights.
• Section 554.1064 - "Good Faith" Defined; Collection by Assignor; Remedies; Priority.
• Section 554.1065 - Perfection of Security Interests; Priority Rules in Article 9.
• Section 554.1066 - Priority Subject to Subordination.
• Section 554.1067 - Promotion of Uniformity.
• Section 554.1068 - Electronic Signatures.
• Section 554.1069 - Applicability of Act.
• Section 554.1070 - Repeal of Certain Acts.

Get free summaries of new opinions delivered to your inbox!

• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

• Announcements
• Receivership Sales Listings
• Financial Institutions and Litigation
• Commercial Lending and Real Estate
• Default Servicing and Foreclosure
• Commercial Litigation
• Michigan Business Court Practice Group
• Corporate Law
• Petroleum Practice Group
• Receiverships
• Frank R. Simon
• Steven A. Morris
• Gary August
• Cynthia I. Brody
• Alan R. Costello
• Daniel J. Feko
• Michael Lewis
• Paul F. McNamara
• Craig T. Mierzwa
• Michael Phelps
• John W. Polderman
• Melgene Castillo Shoemake
• David A. Stephan
• Richard N. Thompson
• Kenneth L. Urwiller
• Matthew E. Vogler
• Eric Wainer
• Tricia Mink
• Jean Richardson
• Client Portal
• CALL 248-720-0290

Important Developments Under Michigan’s New Uniform Assignment of Rents Act

Simon PLC Attorneys & Counselors – August 2022 Memorandum

Troy, Michigan – When a lender makes a loan on income-producing real estate, the lender often requires the borrower to execute an “Assignment of Leases and Rents.” If it becomes necessary for the lender to institute a foreclosure proceeding, this assignment provides the lender with a security interest in rents that accrue prior to the completion of the foreclosure.

The assignment typically permits the lender to take steps following the borrower’s default to collect rents and apply them to reduce the debt. These steps may include the lender’s taking physical possession of the real estate, obtaining the appointment of a receiver, or notifying tenants to direct all future rents to the lender.

Michigan has recently passed a Uniform Assignment of Rents Act, and which is codified at MCL 554.1051 et. seq. (the “Act”).   The Act seeks to bring consistency to commercial real estate transactions by establishing a comprehensive statutory model for the creation, perfection, and enforcement of a security interest in rents.

The Act repeals Michigan’s prior assignment of rents statute and addresses the following issues:

• Once a lender has recorded an assignment of rents, no further action is necessary to protect the enforceability and priority of the lender’s security interest in rents against subsequent purchasers or creditors.   This clarifies and overrules prior precedent case law that suggested that a security interest in rents was ineffective until a lender takes affirmative action after default to enforce its rights.
• The Act establishes that an assignment of rents creates only a security interest in rents. Even if the assignment states it is an absolute transfer of the rents, it will only be deemed to have created a security interest.
• The Act further expands the grounds for appointment of a receiver to collect rents, and provides that a lender is entitled to the appointment of a receiver if any of the following apply: (1) the assignor has agreed to the appointment in the loan documents; (2) It appears the lender is under-secured; (3) The borrower is not turning rents over to the lender; (4) a junior creditor has obtained the appointment of a receiver.
• The lender may also seek appointment of a receiver in connection with a foreclosure or waste being committed at the property.
• Because the appointment of a receiver has been subject to the discretion of the court, some courts have refused to appoint a receiver even when the mortgage provided for the appointment.   The Act clarifies that a receivership clause is enforceable by the lender without regard to the condition of the property or adequacy of security.
• There was a split of case law precedent and authority regarding whether revenues paid by hotel guests, nursing home residents, marinas or garage spaces was rent.   The Act expands the definition of rents to include any sums payable for the right to possess or occupy, or for the actual possession or occupation of, real property of another person.   It also includes fees, charges, accounts, or other payments for the use or occupancy of rooms and other facilities in hotels, motels, or other lodging properties.
• Any other sums payable under an agreement relating to the real property of another person that constitute rents under law of this state other than this act.
• The Act permits a lender to enforce its security interest in rents by giving a notification demanding that the borrower turn over any rents that it may collect following the notification.   A borrower who fails to comply is liable for conversion of those rents.
• The notification demanding that the tenant pay all rents to the lender must provide certain information to the tenant and a copy must be provided to the borrower.   The Act provides a form notification that may be used and is complaint with the notification requirements.

The Act provides needed clarity, consistency and certainty for lenders and borrowers, given the conflicting precedents on treatment of security interests in rents.   The Act takes effect September 22, 2022 and does not affect an action or proceeding commenced before the effective date. Our Financial Institutions, Receivership, Transaction, and Commercial Litigation attorneys are available to consult with you on the implications of the Act.

N.B. Not Legal Advice : Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.

Trending News

Related Practices & Jurisdictions

• Administrative & Regulatory
• Real Estate
• Financial Institutions & Banking

The Michigan Uniform Assignment of Rents Act (“MUARA”), which takes effect on September 22, 2022, strengthens both the right to obtain a receiver and the power of the receiver to collect past due rent. The MUARA also confirms the right to foreclose by advertisement at the same time that a receiver is appointed.

Secured lenders often seek the appointment of receivers to manage income-producing property after a default. The proper handling of rents will help determine whether a distressed property may be successfully rehabilitated. The MUARA clarifies that a receiver is entitled to collect rents that have accrued but remain unpaid on the date the assignment of rents is enforced, as well as collect rents that later accrue. Moreover, the lender is entitled to the appointment of a receiver if the borrower is in default and any of the following apply:

The borrower has agreed in a signed document to the appointment of a receiver upon the borrower’s default;

It appears likely that the property may not be sufficient to satisfy the secured obligation;

The borrower has failed to turn over to the lender proceeds that the lender is entitled to collect under the MUARA; or

A subordinate assignee of rents obtains the appointment of a receiver for the property.

Notably, the MUARA confirms that a lender may seek the appointment of a receiver while contemporaneously foreclosing by advertisement under MCL 600.3201 et seq. The MUARA expressly permits a lender to seek a receiver in connection with any of the following actions:

To foreclose the security instrument;

For specific performance of the assignment of rents;

To seek a remedy based on waste of the property; or

To otherwise enforce the secured obligation or the lender’s remedies arising from the assignment. [1]

A companion bill amends Michigan’s foreclosure by advertisement statute to confirm that an action under the MUARA to enforce an assignment of rents is not an action to recover a debt that would prevent a lender from foreclosing by advertisement.

[1] The MUARA also recognizes that a lender may seek, and is entitled to, appointment of a receiver under other circumstances that permit a receiver to be appointed under other applicable Michigan law. See Public Act No. 115 of 2022, Sections 7(1)(b) and 7(2)(e). An example of other applicable Michigan law is the Michigan Receivership Act, MCL 554.1011 et seq.

Current Legal Analysis

More from miller canfield, upcoming legal education events.

Sign Up for e-NewsBulletins

Michigan Adopts Its Version of the Uniform Assignment of Rents Act

In May 2017, we highlighted the Sixth Circuit’s opinion in Town Center Flats. Briefly, Town Center Flats held that ownership of a commercial property’s rents transferred to a lender when (1) a commercial loan is secured by a recorded assignment of rents, (2) the borrower defaults, and (3) a lender follows Michigan’s statutory procedure to enforce the assignment of rents. Subsequently, a bankruptcy court held that tenants need not receive notice of the borrower’s default for ownership to transfer.[1] Without rents being part of the bankruptcy estate, some borrowers could not finance a bankruptcy proceeding.

On June 24, 2022, the Legislature changed that by enacting the Michigan Uniform Assignment of Rents Act (MUARA). [2] The MUARA protects lenders by clarifying that an assignment of rents is a perfected security interest as soon as it is recorded. It changes the outcome in Town Center Flats , however, by confirming that an assignment of rents does not transfer ownership of rents to a lender, no matter how the loan documents are worded. If a borrower files for bankruptcy protection post-MUARA, the rents are property of the bankruptcy estate and may help pay for the bankruptcy case—if the borrower either obtains lender permission or demonstrates that the lender’s security interest in the rents is adequately protected, of course.

The MUARA considerably enhances Michigan law, clarifies numerous other ambiguities, and adjusts the Uniform Assignment of Rents Act (UARA) (upon which the MUARA is based) to harmonize it with Michigan practice. [3] For instance, under the UARA, every commercial mortgage automatically creates an assignment of rents unless the mortgage states otherwise; under the MUARA, an assignment of rents is only created if a mortgage or separate agreement grants one.

Because the MUARA substantially affects the borrower-lender relationship, Miller Canfield will be issuing a series of articles focused on it. 

[1] In re Skymark Properties II, LLC , 597 B.R. 363 (Bankr. E.D. Mich. 2019).

[2] Public Act No. 115 of 2022 . The MUARA takes effect September 22, 2022.

[3] The Uniform Law Commission proposes legislation covering a variety of topics and urges states to adopt them so as to provide consistent legal expectations throughout the United States. The Uniform Commercial Code is one well-known example of legislation recommended by the ULC, in partnership with the American Law Institute.

Related Posts

• Receiverships Under Michigan's New Assignment of Rents Act
• How Michigan's New Assignment of Rents Act Affects Commercial Tenants
• Hotel Revenues Are "Rents" Under New Michigan Law
• Foreclosure Does Not Extinguish Assignment of Rents
• Assigned Rents Not Bankruptcy Estate Property After Assignment is Enforced

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

Refine your interests »

Written by:

Published In:

Miller canfield on:.

"My best business intelligence, in one easy email…"

• Demorest Law Firm
• Detroit Hospitality Law.com

Detroit Business Law – Resources for Metro-Detroit Businesses

Resources for Metro-Detroit Businesses

Michigan Uniform Assignment of Rents Act

Michigan recently signed into law the Michigan Uniform Assignment of Rents Act (the “MUARA” or the “Act”), MCL 554.1051 et seq , which goes into effect on September 22, 2022. The MUARA changes how an assignment of rents is treated under Michigan law for collection and bankruptcy purposes. Pursuant to the MUARA, an assignment of rents is now considered a security interest, rather than an absolute assignment of the rents.

Any assignment of rents previously properly perfected and recorded does not have to be amended or otherwise redone. Pending litigation as of September 21, 2022 will be treated under the prior law, and litigation filed on September 22, 2022 or later will be governed by the MUARA.

Here are the highlights of the new Act:

• Clarifies that an assignment of rents may be included in the mortgage (or other enforceable security interest). A separate assignment may still be prepared and recorded, but it is no longer necessary.
• The term “rents” is broadly defined.
• Act applies to all commercial property (except properties where 1-4 dwelling units are located, which have special rules).
• Clarifies that an assignment of rents creates a security interest, not an absolute assignment of rents (ownership of rents remains with the debtor).
• The steps required to perfect an assignment of rents are now codified, and upon recording, the security interest is fully perfected.
• Lien priority is consistent with the UCC – 1 st in time is 1 st in right, and a properly recorded assignment will have priority over a later judgment creditor.
• In this scenario, the lender will also retain the right to foreclose the property by advertisement.
• There is a penalty of actual attorney fees if the borrower is found to have improperly diverted rents away from lender.
• There are some practical issues for any tenants of the borrower that may have to be resolved – who to pay; what’s proper notice from the lender; how to address setoffs; etc.
• Receiverships – both the MUARA and the Michigan Receivership Act contain language governing receiverships, so there will be some interplay between the two statutes that will have to be resolved.

If you’re a lender, borrower, tenant, or just have questions about the new law, Demorest Law Firm can help.

Related Posts

Melissa Demorest LeDuc Joins the City of Birmingham Board of Ethics

March 29, 2024 March 29, 2024

Tip Pooling

February 27, 2024 February 27, 2024

Acheson Hotels LLC v. Laufer – Supreme Court Decides Case is Moot 

January 30, 2024 January 30, 2024

About Melissa Demorest LeDuc, Attorney

Melissa focuses her practice on business formation, mergers and acquisitions, real estate transactions, other business transactions, and estate planning. Melissa has particular experience with family-owned businesses, hotels, apartment complexes, and bars/restaurants. Read More

• Client Login

The content you are accessing may be considered attorney advertising material in certain jurisdictions and is for general information only. It should not be construed as and is not intended to constitute legal advice, and should not be used as a basis for action without obtaining legal advice from a qualified attorney. Prior results do not guarantee similar outcomes.

• Publications
• Client Training
• Scott R. Lesser
• Ronald A. Spinner
• Bankruptcy, Restructuring and Insolvency
• Corporate and Transactions
• Financial Services
• Real Estate

Michigan Adopts Its Version of the Uniform Assignment of Rents Act

In May 2017, we highlighted the Sixth Circuit’s opinion in Town Center Flats. Briefly, Town Center Flats held that ownership of a commercial property’s rents transferred to a lender when (1) a commercial loan is secured by a recorded assignment of rents, (2) the borrower defaults, and (3) a lender follows Michigan’s statutory procedure to enforce the assignment of rents. Subsequently, a bankruptcy court held that tenants need not receive notice of the borrower’s default for ownership to transfer.[1] Without rents being part of the bankruptcy estate, some borrowers could not finance a bankruptcy proceeding.

On June 24, 2022, the Legislature changed that by enacting the Michigan Uniform Assignment of Rents Act (MUARA). [2] The MUARA protects lenders by clarifying that an assignment of rents is a perfected security interest as soon as it is recorded. It changes the outcome in Town Center Flats , however, by confirming that an assignment of rents does not transfer ownership of rents to a lender, no matter how the loan documents are worded. If a borrower files for bankruptcy protection post-MUARA, the rents are property of the bankruptcy estate and may help pay for the bankruptcy case—if the borrower either obtains lender permission or demonstrates that the lender’s security interest in the rents is adequately protected, of course.

The MUARA considerably enhances Michigan law, clarifies numerous other ambiguities, and adjusts the Uniform Assignment of Rents Act (UARA) (upon which the MUARA is based) to harmonize it with Michigan practice. [3] For instance, under the UARA, every commercial mortgage automatically creates an assignment of rents unless the mortgage states otherwise; under the MUARA, an assignment of rents is only created if a mortgage or separate agreement grants one.

Because the MUARA substantially affects the borrower-lender relationship, Miller Canfield will be issuing a series of articles focused on it. Should you have any questions or would like assistance in understanding how this might affect your matters, please feel free to contact us.

[1] In re Skymark Properties II, LLC , 597 B.R. 363 (Bankr. E.D. Mich. 2019).

[2] Public Act No. 115 of 2022 . The MUARA takes effect September 22, 2022.

[3] The Uniform Law Commission proposes legislation covering a variety of topics and urges states to adopt them so as to provide consistent legal expectations throughout the United States. The Uniform Commercial Code is one well-known example of legislation recommended by the ULC, in partnership with the American Law Institute.