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How You Can Collect Rent While Foreclosing on a Property

 Posted on July 06, 2018 in Mortgage Foreclosure

How You Can Collect Rent While Foreclosing on a PropertyAn assignment of rents clause in a mortgage agreement can be helpful when the borrower collects rent from tenants on its property. With the clause, the mortgagee may be able to collect rent payments directly if the borrower defaults on the mortgage. However, it can be difficult to predict how the clause will work in practice because of the vagueness of the law and inconsistencies between different state’s laws. Mortgagees with borrowers in Illinois have used litigation to enforce the clause. U.S. district courts have interpreted Illinois’ law on the assignment of rents to allow the mortgagee to collect rent when it meets certain requirements.

Property Possession

Establishing the possession of a rental property is the clearest way for a mortgagee to assert the assignment of rents clause in a mortgage. The mortgagee can claim actual possession of the property or constructive possession, which means the mortgagee effectively controls the property. In order to take possession of a real property during foreclosure:

  • The mortgagee must file a motion to obtain possession;
  • The mortgagee must show that the mortgage contract gives it authority to possess the property in case of foreclosure; and
  • The court must believe that the mortgagee is likely to prevail in the case.


A mortgage borrower often objects to the assignment of rents if the mortgagee has not legally taken possession of the property. However, courts have allowed mortgagees to collect rent in Illinois cases without possessing the land. In the 2015 case of In re Benanti, a U.S. bankruptcy court ruled that the mortgagee could collect rent without possessing the property because the borrower had filed for chapter 7 bankruptcy. The court stated that post-petition rent from after the bankruptcy filing was cash collateral for the mortgagee.

Special Agreement

A mortgagee can forego the possession requirement for the assignment of rents if the borrower agrees to it in a formal contract. In the 2017 case of BMO Harris Bank N.A. v. Joe Contarino, Inc., the court ruled that the terms of a forbearance agreement between the mortgagee and borrower allowed the mortgagee to enact the assignment of rents without possessing the property. The agreement did not violate the law because the borrower was still allowed to use rent money to pay for the management, maintenance, and repair of the property.

Collecting on Rent 

Even with a clear assignment of rents clause in your mortgage agreement, you may need to use litigation to enforce the clause against a borrower in default. A Chicago creditor’s rights attorney at Dimand Walinski Law Offices, P.C., can help you receive the collateral money you need during your foreclosure case. To schedule a consultation, call 312-704-0771. 


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