collateral assignment of notes and liens

Download Texas Collateral Assignment of Note and Liens (Security Agreement) Forms

Texas collateral assignment of note and liens (security agreement).

1. Borrower/Obligor 2. Debtor/Original Lender 3. Secured Party(SP)/3rd Party/New Lender This form assigns the current Debtors/lenders security interest in a promissory note backed by a previously recorded Deed of Trust Lien, with all rights, titles, equities and interest securing the same as described in that certain Deed of Trust. This collateral is assigned to a Secured Party to protect a Security Agreement made between the Debtor and Secured Party. A collateral assignment is a pledge that the Debtor will pay the Secured Party as agreed. Debtor authorizes Secured Party, at Secured Party's option, to collect any and all sums becoming due upon the Collateral, such sums to be held by Secured Party without liability for interest thereon and applied toward the payment of the Obligations as and when the same becomes payable, and Secured Party shall have the full control of the Collateral and the Deed of Trust Lien securing the same until the Obligations are fully paid and shall have the further right to release the Deed of Trust Lien securing the Collateral upon the full and final payment to Secured Party. Typically used by Private Lenders/Debtors to borrow money on a property that they financed by a Deed of Trust Lien and Promissory Note. Sec. 9.102. DEFINITIONS AND INDEX OF DEFINITIONS. (a) In this chapter: (12) "Collateral" means the property subject to a security interest or agricultural lien. The term includes: (A) proceeds to which a security interest attaches; (B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and (C) goods that are the subject of a consignment. (28) "Debtor" means: (A) a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor; (B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or (C) a consignee. (66) "Promissory note" means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay, and does not contain an acknowledgement by a bank that the bank has received for deposit a sum of money or funds. (73) "Secured party" means: (A) a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding; (B) a person that holds an agricultural lien; (C) a consignor; (D) a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold; (E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for; or (F) a person that holds a security interest arising under Section 2.401, 2.505, 2.711(c), 2A.508(e), 4.210, or 5.118. (74) "Security agreement" means an agreement that creates or provides for a security interest. For use in Texas only.

Real Estate Collateral Transfer Of Note And Lien Conversation

This was an interview with my real estate attorney where we discuss the Real Estate Collateral Transfer Of Note And Lien structure. Along with some other discussions about private mortgage lending, aka, private money and various real estate topics within the capital sphere of the investing spectrum.

Brant: This is Steve Newsom, Attorney at Law. We’ve been working together almost since I first got into real estate. You set up, not my first entity, but all the other since. Whenever Jack and I started raising private money, you’re who we called and sit down with you, pretty much like, “What can we do and not without getting thrown in jail?” “Do this, do, this, don’t do this.” Which is pretty much, “Just be honest with people. Don’t go doing all this public marketing, all that kind of stuff.”

Brant: So why is Steve here? So recently I’ve been lending more. Okay? So sometimes when I lend I use my own cash, but more frequently when I do lending I use my private lender’s cash. Okay? Why is this really important? Probably everybody in here I’m assuming is focused on real estate investing is trying to raise private money. Am I right? Hopefully so because that’s critical fundamental to your business. So the last thing that you want to do is raise money and get a private lender relationship and then you lose them.

Brant: What is that noise?

Speaker 2: The AC.

Brant: Did it kick in or something? So last thing you want to do is raise money, you get a good private lender relationship and then they leave because you don’t keep them busy enough for whatever reason. So a few years ago we started really creating that situation where we had more money available than we can use. Well, so what did we start doing? You spend all this time cultivating relationships with lenders and your lenders, they trust you. I have certain lenders they only want to loan to me. That’s great and it’s fine, but there’s a line. So it’s not good for them for the returns because the last thing you want, if you’re trying to invest money, it’s just have it sitting for months and months and months at a time.

Brant: So years ago I started loaning it out, basically brokering it kind of, to my students. Handshake agreements are great, right? I was like, “Hey man, this is my lender. This is my lender. I’m letting you use them now, but they’re mine.” People are people. People go around, dah, dah, dah, dah, dah and stuff happens. So I started going to my lenders, I was like, “Hey, this is my bar.” Pretty much I’m like, “I’ve been the middle man and I’m being compensated for it, I understand that. But I appreciate if you come to me first.” Most of them have, it happened just last month. They’re like, “Hey this students coming to me so I had to call them. I’m like what’s up man?” It was pretty much like a, “Oh see what had happened was I thought you meant the other lender, not this one.” I was like, “All right man, just don’t do it again. We’re still good, but don’t do it again.”

Brant: So I called Steve and this is … Y’all need to write Steve’s information down because this is what I’ll do a lot of times. I’m like, “Steve, I want to do this. How can we do it?” That’s a really good way to phrase a question because some attorneys will tell you, “You can’t do that.” But Steve will take the time like, “Well let’s think about that and see how it’s possible to do it.” Occasionally you may say, “No, you can’t do it.” But you’re usually really good about [crosstalk 00:03:33]-

Steve: What’s a great thing about real estate and real estate funding and real estate investing is you can be really creative, just take the time to think outside the box a little bit. I haven’t been a lawyer my whole life, I actually was in the business world, I was an engineer, I had a consulting business. So I tend to think outside the box because if my background a lot. So Brant would come to me and he’d have some weird situations and say, “What can we do?”

Steve: So we sit down and we’d think about different ways of doing it. I’ve been a real estate investor too, and I’ve had to be creative when I was investing in real estate. So I know where he’s coming from. So we come up with a plan and usually we can come up with some way to do it even though it’s a little unconventional, but it works.

Brant: Yeah. So as we progress as real estate investors, I told Steve, I called him up with my problem. I was like, and he knows that I was working my lenders. I was like, “Hey one of my students or old friends, should say, went around again, it’s frustrating.” He mentioned, he’s like, “Why don’t you use this collateral transfer of a note structure?” So I was like, “Well tell me about that.”

Brant: He’s like, “Well this is basically what a lot of hard money lenders do and big lenders.”

Steve: Basically what it is is, and I’m going to try and do an analogy to make it simpler to understand, okay? But what you’re doing is Brant is going to loan money to me to go buy a house, right? Private money loan, just straight regular deal. Okay? But then he’s going to have Joe, who’s going to loan him the money to loan to me. Okay.? But what’s Joe’s problem? Joe’s problem is, well, what if he doesn’t pay you? What can I do? I don’t have a lien on the house so I can’t foreclose on the house. So what you do is that Brant takes the note that he has for me and he says to Joe, he says, “Joe, if I don’t pay you, then you can foreclose on the note with Steve.”

Steve: So then Joe becomes the owner of the note and therefore he secured on the property, because the note’s secured on the property. So it’s like an indirect way of a lender being secured on the property. It’s just that Brant’s in between the note. So that’s the securities. Security’s not directly in the property, the security is the note that is secured on the property. Okay? So it’s not really that complicated and it allows the lender to have security because what we do is we draft up documents. So some of the documents for example, is there’s going to be a loan agreement. Okay? The loan agreement with Joe is the same thing as the note between Brant and me. Okay? Then you have a deed of trust, right? Okay, the deed of trust secures the note the Brant gave me or that I gave the Brant on the property, that’s the deed of trust.

Steve: Well there’s a document called a collateral transfer of note and lien. That’s the same thing as a deed of trust only instead of on the piece of property, it’s on the note. So it’s the same type of transaction. Again, it’s just that you don’t have the lender … Joe doesn’t have a direct lien on the property, it’s an indirect one because then he would have to take the note, step into Brant’s shoes and then Joe would collect the payments. If the payments aren’t made from the homeowner or me, then he could foreclose on the property because he now owns the note. So you see how that works? So conceptually, it’s pretty simple, it’s just there’s one extra person in the middle.

Steve: So what happens with a lot of hard money lenders in a lot of big deals, this happens big companies and stuff, is that it keeps the money working. Okay? So that’s why a lot of them do it. It provides Brant, or the person that’s trying to put the money to work, with more money because then there’s people that are willing to do that. So anyway, what we’ve done is we’ve taken this concept that usually is done on big banks and things like that and we brought it down to the single family home transactions. So that’s how we came about. Does that make sense?

Brant: So just real simple, typically a lender loans money to a bar, right? This is our structure. So here’s what we’re doing, this is another benefit of it for our lenders and then for you guys is essentially the entrepreneur. Like I said, some of my lenders I’ve been working with for 10, 11 years. So for me, whenever I started essentially helping them to loan to other people, a lot of them really didn’t like it at first. Some of them still don’t. They’re like, “Well we want to loan to you Brant, we want to loan to Invest Home Pro.” Because they know me, they’re comfortable with that. So I was spending a lot of time going to bat for the borrowers. I vet my borrowers good and I have 100% track record, but it’s still, it’s a lot of time and effort and, “Hey they’re a good person, they’re going to pay I hope.” But I’m still, I don’t know if they are, but I’m assuming that they are and it’s a good deal.

Brant: So I’ve done my best to only do loans on deals that I would personally take back if it came to that. So what this has done is essentially now my lender, for them, instead of dealing with just some random person that they don’t know now the borrower is my company, Invest Home Pro. So when they’re lending, they’re lending to me. They may or may not even know who the borrower is it all. So what am I doing? So that lender is going to entrust me with this money, Steve’s going to secure it, right? Like what the paperwork is going to secure it. So then he is here now, which is Invest Home Pro and so that I’m going to have a separate set of loan documents and I’m going to loan to the borrower. Okay?

Brant: So I’m going to go to this borrower. So this borrower’s responsible to me. They’re making payments, I’m making payments to this person. Okay? Now if this person doesn’t perform, if they default, if there’s a hurricane or whatever, then who’s responsible for paying them? Still me. So I didn’t like, when I was coordinating this thinking myself, did this person pay? I had that happen, “Hey so and so’s late.” Now I’m the middle man and I don’t have any control and I didn’t like that. So now I know with our systems, if we’ve received that check or not, our stuff always gets set up on auto bill pay to our lenders, and I encourage all you guys to do that. Pay your lenders early. So I know that I’m paying them no matter what.

Brant: If this deal goes bad, if this deal goes sideways, if they don’t perform, guess what? They’re never going to know about it. They asked me, but I’m just going to pay them and I’m going to handle this. So it gives more peace of mind for me, more peace of mind for them. It unclutters the whole process. Then I’m able to deploy more of my private lender’s money to keep it working so I keep them happy with me and it’s an income for me. My lenders know, let’s say if I have a lender that says, “Hey Brant, I want 10% at one point.” Well I’m going to charge 12% in two points or three points. Or depending on the deal, depending on who it is, I may church three or four points. If it’s someone I don’t know, if there’s more risk, it just depends.

Brant: So that’s what we’re doing, doing it with this structure.

Steve: There are some advantages to the lenders loaning to Brant and you just mentioned some of them. But they have more security. Because if you think about it, that lender now has two people on the hook to pay them, right? They’ve got Brant who’s on the hook to pay them. If anything goes wrong and they don’t get paid, Brant’s company is liable to them. Okay? Then they’ve also got the borrower on the property because if they take the note, then they get the borrower, the borrower has to pay them. So they actually have two people that are now liable to pay that note. Okay? So they would have to have two people default in order for them to get in trouble. Then if both people default, then they get a property through a foreclosure.

Steve: So they actually have more security doing it this way because there’s more people liable to pay.

Brant: So just want to share that with you guys, if you’re raising money and you guys to go become lenders, but if you start raising it at a higher capacity, higher level then it’s just something to think about.

Steve: This isn’t something we just made up. Okay? This has been around, I’ve just brought it down to a smaller level to where we’re doing it on smaller people, on single single family instead of just being done on hotels and stuff like that. Okay? So it’s not something we just concocted. This is a thing that’s been around for a while. It just hasn’t been at the small investor level very much and now we’re doing it that way.

Brant: Okay. A couple of questions.

Speaker 4: So it’s essentially a wrap?

Brant: No, it’s not a wrap. It’s two totally separate loans. Not a wrap at all.

Speaker 5: What did you call it again? Collateral?

Steve: Collateral transfer of note and lien.

Brant: Okay, was there another question?

Speaker 5: Have you had a borrower default?

Brant: I’ve never had a borrower default. I’ve had somebody [crosstalk 00:13:39].

Speaker 5: What’s you plans for if that does happen?

Brant: I’ll take over the loan. So I’m dealing with close to 300 deals. Right? So I’ve always performed on every single one of my deals. There were times when I was first starting out and I got stuck in situations that were very, very difficult. But going back to when I first got in this business, when I first started raising private money, I remember I had some lenders and they’re like, “We like you Brant, we want to invest with you.” I’m going home and telling my wife about it and she’s like, “Man, that’s awesome.” But I felt this enormous amount of pressure on my shoulders because it’s a big responsibility. I told my wife, I was like, “I’m nervous because they’re putting their hard earned retirement money, their wealth, everything that they have and trusting me with it.” I said, “If anything goes wrong, babe, I’m like, we’ll sell our house. We’ll sell our car. I’m going to make it happen.”

Brant: So I hope the borrower never defaults and I’ve never had one even over in finance. But whenever it happens, I’ll take care of that situation. Another part to that question, this is really, really, really important for me. I’m only lending on deals that I would personally invest in. The properties I mentioned earlier … Well, there’s some exceptions. But for the most part, what we’re lending on is our cookie cutter suburbs homes, loans that are less than $200,000. We can rent them, flip them, owner finance them wholesale them. So I give myself exit strategies. We are controlling the draws, we’re dispersing those accordingly. So we’re protecting ourselves.

Speaker 6:  So we can just pick up-

Brant:  Yep.

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Assignment Note Lien Form

Do you need an Assignment Note Lien Form? This agreement serves to assign a lender’s interest in promissory note, secured by collateral, to a third party. This document is used when the third party purchases the note rights from the lender, or otherwise pays off the lender in exchange for the right to collect all future payments from the underlying borrower. It is also sometimes used as collateral in situations where a lender is borrowing money from another lender, and puts up a note payable to themselves as collateral for their repayment to the new lender.

Buying and Selling Real Estate Notes

Not as Simple as One Might Think by David J. Willis J.D., LL.M.

Introduction

Investors often buy and sell real estate lien notes, either singly or in a package, a transaction that is customarily effected by a Sale & Assignment of Notes and Liens . This transfer instrument is referred to in this article simply as an assignment.

The idea of buying or selling a note seems simple until one delves into it. Is the assignment to be made “as is” with all faults that may exist in the note and the lien instrument? Will there be representations and warranties made by the parties and, if so, how extensive? How long will they last? Will recourse provisions apply if the note goes into default, and if so what is the recourse mechanism? Will indemnities be included? The closer one looks the more questions arise.

Our focus in this article is on the final assignment instrument signed by the parties at closing of the transfer rather than preliminary agreements that may come before closing.

The Assignment Process

In the case of real estate lien notes, a completed assignment involves not just a transfer of a note but the liens securing payment as well, which is why the assignment instrument is referred to as an assignment of note and liens. Two liens may be involved: the vendor’s lien retained in the deed from the seller to the borrower and the lien granted by a deed of trust.

One must distinguish between an absolute assignment of a note (a permanent transfers to a new owner and holder) versus a collateral assignment (made to a lender as collateral for a loan). Notes may be assigned in either way.

This discussion addresses absolute assignments. Steps in the process are usually: (1) an initial letter of intent or preliminary contract phase when basic terms are agreed to—similar to an earnest money contract for real estate—with “outs” for the prospective buyer; (2) a due-diligence or inspection period when a prospective buyer studies and evaluates the note (or package of notes) along with the lien instrument(s) and supporting documentation; (3) a cure period for objections, if any, raised by the buyer; (4) a closing document negotiation phase in which the terms of the final assignment instrument are hammered out and agreed to; and (5) a closing where a final sale and assignment of note and liens is executed, the purchase price paid, and the original note and loan file are delivered to the buyer-assignee.

BUSINESS & COMMERCE CODE

Negotiable instruments.

A properly written and endorsed real estate lien note is a negotiable instrument for purposes of Business & Commerce Code Section 3.201 et seq. Specific requirements of negotiability are listed in Section 3.104:

Bus. & Com. Code Sec. 3.104(a). NEGOTIABLE INSTRUMENT. Except as provided in Subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protect collateral to secure payment; (B) an authorization or power to the holder to confess judgment or realize on or dispose of collateral; or (C) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

A real estate note that does not qualify as a negotiable instrument may still be valid and enforceable, and it may still be sold and assigned, but common law rules relating to the assignment of contracts will apply—the negotiable instrument rules of the Business & Commerce Code will not.

The resale value of a note that is non-negotiable is likely to be discounted.

Statutory Warranties

Business & Commerce Code Section 3.416 provides minimal warranties for notes that are negotiable instruments. These are automatically in place unless the assignment instrument disclaims them:

Bus. & Com. Code Sec. 3.416(a). TRANSFER WARRANTIES. A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:

(1) the warrantor is a person entitled to enforce the instrument;

(2) all signatures on the instrument are authentic and authorized;

(3) the instrument has not been altered;

(4) the instrument is not subject to a defense or claim in recoupment of any party that can be asserted against the warrantor;

(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker. . . .

Unless contradicted or disclaimed in the assignment, these statutory warranties co-exist with contractual representations and warranties of the parties (discussed below).

DUE DILIGENCE BY BUYER-ASSIGNEE

Are the note and lien valid.

Determining the validity and enforceability of a real estate note and the lien(s) securing it is the core due-diligence task of any prospective buyer—who should obtain the whole loan file not just a copy of the note itself. A complete file will include (at least) the note; a copy of a recorded deed of trust; a copy of a recorded deed into the name of the property owner (the borrower); and a payment history. Even if only copies are being reviewed, the original note should exist and be available for inspection.

For a note to be valid, there must be consideration extended—money that is actually loaned. Hughes v. Belman , 239 S.W.2d 717, 720 (Tex.App.—Austin 1951, writ ref’d n.r.e.); and Bus. & Com. Code Sec. 3.303.

Generally, a note offered for sale should:

(1) be correct as to all material information including clearly identifying borrower and lender as well as the security property; (2) recite an unconditional promise to pay a sum-certain debt (and the numerical portion must match the written portion); (3) contain authentic signatures of all debtors and be dated; (4) provide clear terms of repayment; (5) be secured by a valid, recorded, and unreleased deed of trust; (6) contain the signature of both spouses if the property is homestead; (7) not contain any provisions that are illegal such as requiring usurious interest; (8) not be in default (monetary of technical) or the subject of any dispute with the borrower; (9) not be in litigation or bankruptcy whether existing, threatened, or anticipated; (10) not be the subject of any interest or claim by third parties; and (11) not have been previously sold or transferred in whole or in part.

This is a partial list. Sensible note purchasers will also want to perform minimal due diligence as to the value and condition of the security property since such factors may influence future note payment and performance. Does the property exist? Is it owner-occupied or occupied by renters? Is it in a state of good repair or is it underwater as a result of a recent flood?

If the parties to the note are registered entities (LLCs, corporations, or limited partnerships) it is important to verify that they are in good standing with the Secretary of State and the Texas Comptroller. If not, they do not have the legal capacity to do business, whether it is selling or buying notes or anything else.

All of the foregoing factors affect the quality of the note or notes being considered—and quality affects price.

The importance of thorough due diligence cannot be over-emphasized. A prospective buyer should engage an experienced attorney to assist in determining the validity and enforceability of the loan documents before substantial funds are committed.

Even when a note is being transferred entirely “as is” a prospective buyer-assignee should insist on an adequate due diligence/inspection period before closing.

REPRESENTATIONS AND WARRANTIES

Beyond statutory minimum warranties.

A well-drafted assignment may (and should) go beyond minimum statutory warranties to include contractual representations and warranties by the parties. It is possible for the assignment to include extensive reps and warranties, limited reps and warranties, or no reps and warranties at all—in which case the assignment is made “as is” and almost always without recourse. These terms should be expressly stated in the assignment instrument.

The goal of the seller-assignor is to minimize ongoing liability by limiting the number of reps and warranties. The buyer-assignee will instead prefer a longer list of assurances concerning note quality and completeness of the loan file.

Core representations and warranties of the seller-assignor include assurances that the note and lien(s) contain correct information and are legally valid and enforceable; that they are secured by a lawful vendor’s lien retained in a recorded general or special warranty deed plus a valid first-lien recorded deed of trust against the security property; that payments are current and there is no threat of monetary or technical default; that no adverse litigation is pending or threatened; and that the assignor is the sole owner and holder of the debt with power to transfer the note and liens.

There may be many more seller reps and warranties that a careful buyer will want to include. An example: if the seller-assignor was the original payee on a real estate note, and the note arose from seller financing, the buyer-assignee should want a specific warranty that the SAFE Act and Dodd Frank were fully complied with in the course of the original transaction.

There is the question of how long reps and warranties will survive closing (if at all)—30 days? 90 days? Forever?

Obtaining adequate reps and warranties from the seller-assignor does not substitute for thorough due diligence by a prospective buyer-assignee.

OTHER CLAUSES IN THE ASSIGNMENT

Assignments made “as is”.

What if the transaction is entirely “as is,” with no reps and warranties? There is certainly a market for this although the sales price of the note(s) will be discounted as a result. The key element in the assignment (for the seller-assignor) will be an effective “as is” clause similar to ones found in earnest money contracts and warranty deeds. Drafting these clauses can be tricky. Simplistic, one-liner “as is” clauses will not suffice since the seller-assignor needs not only to disclaim assurances regarding the note being transferred but also any reps or warranties concerning the condition and value of the security property.

Disclosure by the Seller-Assignor

Notwithstanding that an assignment is being made and accepted “as is,” a buyer should seek to obtain an agreement by the seller to make full disclosure of material facts. A sample clause might be: Assignor covenants and agrees to fully disclose to Assignee, prior to expiration of the inspection period, any and all material facts, conditions, and circumstances pertaining to the note(s), the lien(s), and the security property that could reasonably be expected to affect the Assignee’s decision to buy or not buy, even if this assignment is agreed to be “as is,”in present condition with all faults and without recourse.

Recourse by the Buyer-Assignee

Notes are sold with or without recourse by the buyer-assignee against the seller-assignor. Recourse comes in three varieties: none, full, or limited.

No recourse means what it says: if the borrower defaults then the buyer-assignee is stuck with a non-performing note (a near-worthless asset) and is solely responsible for pursuing the debtor and foreclosing on the security property.

Full recourse means that the buyer-assignee gets to give the note back to the seller-assignor if the debtor defaults. One of two things generally happen: (1) the buyer-assignee gets a credit or refund or (2) the buyer-assignee can substitute another note that is current and performing. There are other variations.

Limited recourse is, contractually speaking, all over the place. There are as many different provisions for limited recourse as there are creative attorneys to write them. Limited recourse provisions may state that there will be some sharing of effort and expense in collection or foreclosure, possibly with a reckoning after foreclosure sale of the security property. Remedies may be different when a batch of notes is involved: for example, if 100 notes are sold, the assignment might provide that the first 10 problematic notes will be full recourse, but the remaining 90 will not. In either case, there may be a hard limit on the total monetary amount of recourse available against the seller-assignor.

The availability of recourse—whether none, full, or limited—may also be contained within a specific time period. The availability of recourse is seldom indefinite.

Indemnity Provisions

If possible, the seller-assignor will want an indemnity clause holding him harmless against issues that may later arise in connection with the legality, enforceability, or collectability of the note. As with sellers of anything, the goal is no comebacks after closing.

Note buyers, on the other hand, resist not only taking the heat for defects in what they are purchasing but also paying the cost of defending against lawsuits arising from those defects. As with so many issues in real estate it comes down to quality and price. A seller-assignor may be able to get an indemnity provision included but it may be costly when it comes to the assignment sales price.

Indemnity provisions, although important, may be overrated since they are not self-executing. After all, the terms of an assignment can do nothing to prevent a borrower from suing both the seller-assignor and the buyer-assignee at some later time, resulting in inescapable up-front defense costs. One party to the assignment is left with a claim against the other based on the indemnity provision, often resulting in a second lawsuit.

As is the case with many other types of contracts, it is often beneficial to include a mandatory mediation clause in the assignment.

Drafting Considerations Generally

An assignment of note and lien(s) should be a comprehensive document. (If it is one page or less, something is amiss.) All obligations should be express. Nothing should be implied. No one should be allowed to assume anything or rely on anything unless expressly stated in writing. Oral statements should be disclaimed. A poorly-written assignment that involves unwritten assumptions and reliance on oral statements can easily form the basis for future litigation.

The foregoing discussion is by no means intended to be an exhaustive list of possible provisions that can be included in an assignment of note and liens. (Such documents can easily run 10 to 20 pages.) It merely hits the highlights.

CLOSING OF THE ASSIGNMENT

Endorsement and delivery of the note.

The note itself should be marked or stamped appropriately and the endorsement (or indorsement as it is referred to in the Business & Commerce Code) signed by the seller-assignor. The endorsement should include wording appropriate to the circumstances such as “payable to assignee without representations, warranties, or recourse” and would include the effective date.

Where does one place the endorsement? “For an instrument to be negotiable, indorsements must be written on the instrument or on a paper so firmly affixed thereto as to become a part thereof [sometimes called an allonge ]. An allonge is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself.” Failure to properly endorse a note when it is transferred may impair its negotiability, resulting in the recipient being a mere transferee rather than having the superior status of a holder in due course [see Bus. & Com. Code Sec. 3.302].” Federal Fin. Co. v. Delgado, 1 S.W.3d 181, 185-86 (Tex.App.—Corpus Christi 1999, no pet.).

The original note(s) should be delivered to the buyer-assignee at closing.

Execution and Recording of the Assignment

Both the seller-assignor and the buyer-assignee should sign the assignment in order to indicate mutual assent to its terms and conditions. A properly-drafted assignment is not merely a unilateral transfer but represents a complex contract between the parties. The assigning party’s signature is not enough.

It is usually advisable for the buyer-assignee to record the assignment in the real property records of the county where the security property is located, so the assignment should be prepared in recordable form.

INVESTOR STRATEGIES

Notes are financial assets and their acquisition can be a part of an investor’s long-term buy-and-hold strategy. Like rents, a portfolio of mixed-age performing notes can produce a stream of income; however, unlike real property, there is no underlying equity that appreciates over time. In fact, the value of note assets depreciates so a stable portfolio requires continual replenishment. As notes age and mature new notes must be acquired in their stead if the income stream is to be maintained.

It is, of course, possible to acquire notes for other reasons. One aggressive strategy is to buy a secured note in default with the specific intention of foreclosing on the security property. A long-term hold is not the objective; acquiring the property is the objective. This scenario contemplates more of an “as is” approach to the note since its price is likely to be heavily discounted. In such cases, thorough due diligence is necessary in order to ensure that both the note and deed of trust are valid and enforceable with no obvious defenses available to the debtor.

Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2023 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com .

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• Life Insurance

What Is Collateral Assignment (of a Life Insurance Policy)?

Meredith Mangan is a senior editor for The Balance, focusing on insurance product reviews. She brings to the job 15 years of experience in finance, media, and financial markets. Prior to her editing career, Meredith was a licensed financial advisor and a licensed insurance agent in accident and health, variable, and life contracts. Meredith also spent five years as the managing editor for Money Crashers.

Definition and Examples of Collateral Assignment

How collateral assignment works, alternatives to collateral assignment.

Kilito Chan / Getty Images

If you assign your life insurance contract as collateral for a loan, you give the lender the right to collect from the policy’s cash value or death benefit in two circumstances. One is if you stop making payments; the other is if you die before the loan is repaid. Securing a loan with life insurance reduces the lender’s risk, which improves your chances of qualifying for the loan.

Before moving forward with a collateral assignment, learn how the process works, how it impacts your policy, and possible alternatives.

Collateral assignment is the practice of using a life insurance policy as collateral for a loan . Collateral is any asset that your lender can take if you default on the loan.

For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral. If you have a permanent life insurance policy with a cash value of $40,000 and a death benefit of $300,000, you could use that life insurance policy to collateralize the loan. Via collateral assignment of your policy, you authorize the insurance company to give the lender the amount you owe if you’re unable to keep up with payments (or if you die before repaying the loan).

Lenders have two ways to collect under a collateral assignment arrangement:

• If you die, the lender gets a portion of the death benefit—up to your remaining loan balance.
• With permanent insurance policies, the lender can surrender your life insurance policy in order to access the cash value if you stop making payments.

Lenders are only entitled to the amount you owe, and are not generally named as beneficiaries on the policy. If your cash value or the death benefit exceeds your outstanding loan balance, the remaining money belongs to you or your beneficiaries.

Whenever lenders approve a loan, they can’t be certain that you’ll repay. Your credit history is an indicator, but sometimes lenders want additional security. Plus, surprises happen, and even those with the strongest credit profiles can die unexpectedly.

Assigning a life insurance policy as collateral gives lenders yet another way to secure their interests and can make approval easier for borrowers.

Types of Life Insurance Collateral

Life insurance falls into two broad categories: permanent insurance and term insurance . You can use both types of insurance for a collateral assignment, but lenders may prefer that you use permanent insurance.

• Permanent insurance : Permanent insurance, such as universal and whole life insurance, is lifelong insurance coverage that contains a cash value. If you default on the loan, lenders can surrender your policy and use that cash value to pay down the balance. If you die, the lender has a right to the death benefit, up to the amount you still owe.
• Term insurance : Term insurance provides a death benefit, but coverage is limited to a certain number of years (20 or 30, for example). Since there’s no cash value in these policies, they only protect your lender if you die before the debt is repaid. The duration of a term policy used as collateral needs to be at least as long as your loan term.

A Note on Annuities

You may also be able to use an annuity as collateral for a bank loan. The process is similar to using a life insurance policy, but there is one key difference to be aware of. Any amount assigned as collateral in an annuity is treated as a distribution for tax purposes. In other words, the amount assigned will be taxed as income up to the amount of any gain in the contract, and may be subject to an additional 10% tax if you’re under 59 ½.

A collateral assignment is similar to a lien on your home . Somebody else has a financial interest in your property, but you keep ownership of it.

The Process

To use life insurance as collateral, the lender must be willing to accept a collateral assignment. When that’s the case, the policy owner, or “assignor,” submits a form to the insurance company to establish the arrangement. That form includes information about the lender, or “assignee,” and details about the lender’s and borrower’s rights.

Policy owners generally have control over policies. They may cancel or surrender coverage, change beneficiaries, or assign the contract as collateral. But if the policy has an irrevocable beneficiary, that beneficiary will need to approve any collateral assignment.

State laws typically require you to notify the insurer that you intend to pledge your insurance policy as collateral, and you must do so in writing. In practice, most insurers have specific forms that detail the terms of your assignment.

Some lenders might require you to get a new policy to secure a loan, but others allow you to add a collateral assignment to an existing policy. After submitting your form, it can take 24 to 48 hours for the assignment to go into effect.

Lenders Get Paid First

If you die and the policy pays a death benefit , the lender receives the amount you owe first. Your beneficiaries get any remaining funds once the lender is paid. In other words, your lender takes priority over your beneficiaries when you use this strategy. Be sure to consider the impact on your beneficiaries before you complete a collateral assignment.

After you repay your loan, your lender does not have any right to your life insurance policy, and you can request that the lender release the assignment. Your life insurance company should have a form for that. However, if a lender pays premiums to keep your policy in force, the lender may add those premium payments (plus interest) to your total debt—and collect that extra money.

There may be several other ways for you to get approved for a loan—with or without life insurance:

• Surrender a policy : If you have a cash value life insurance policy that you no longer need, you could potentially surrender the policy and use the cash value. Doing so might prevent the need to borrow, or you might borrow substantially less. However, surrendering a policy ends your coverage, meaning your beneficiaries will not get a death benefit. Also, you’ll likely owe taxes on any gains.
• Borrow from your policy : You may be able to borrow against the cash value in your permanent life insurance policy to get the funds you need. This approach could eliminate the need to work with a traditional lender, and creditworthiness would not be an issue. But borrowing can be risky, as any unpaid loan balance reduces the amount your beneficiaries receive. Plus, over time, deductions for the cost of insurance and compounding loan interest may negate your cash value and the policy could lapse, so it’s critical to monitor.
• Consider other solutions : You may have other options unrelated to a life insurance policy. For example, you could use the equity in your home as collateral for a loan, but you could lose your home in foreclosure if you can’t make the payments. A co-signer could also help you qualify, although the co-signer takes a significant risk by guaranteeing your loan.

Key Takeaways

• Life insurance can help you get approved for a loan when you use a collateral assignment.
• If you die, your lender receives the amount you owe, and your beneficiaries get any remaining death benefit.
• With permanent insurance, your lender can cash out your policy to pay down your loan balance.
• An annuity can be used as collateral for a loan but may not be a good idea because of tax consequences.
• Other strategies can help you get approved without putting your life insurance coverage at risk.

NYSBA. " Life Insurance and Annuity Contracts Within and Without Tax Qualified Retirement Plans and Life Insurance Trusts ." Accessed April 12, 2021.

IRS. " Publication 575 (2020), Pension and Annuity Income ." Accessed April 12, 2021.

Practical Law. " Security Interests: Life Insurance Policies ." Accessed April 12, 2021.

What's the difference between a mortgage assignment and an endorsement (transfer) of the note?

Banks use assignments and endorsements to transfer mortgages, deeds of trust, and promissory notes to other banks..

When you take out a loan to buy a home, you're usually required to sign two documents: a mortgage (or deed of trust ) and a promissory note. "Assignments" and "endorsements" are how these documents get transferred between banks.

If you're facing a foreclosure and the foreclosing bank doesn't have the proper endorsements and assignments, you might have a defense to the foreclosure.

• Understanding Mortgage Transactions
• Assignments of Mortgages and Deeds of Trust
• Endorsements of Promissory Notes
• Talk to an Attorney

To fully understand the difference between an assignment of mortgage (or deed of trust) and endorsement of the note, you must understand the basic terms and documents involved in a residential mortgage transaction.

• Mortgagee and mortgagor. In a mortgage, a "mortgagee" is the lender. The mortgagee gives the loan to the "mortgagor," the homeowner/borrower.
• Loan documents. Again, the loan transaction consists of two main documents: the mortgage (or deed of trust) and a promissory note. The mortgage or deed of trust is the document that pledges the property as security for the debt and permits a lender to foreclosure if you fail to make the monthly payments. The promissory note is the IOU that contains the promise to repay the loan. The purpose of the mortgage or deed of trust is to provide security for the loan that's evidenced by a promissory note.
• Loan Transfers. Banks often sell and buy mortgages from each other. An "assignment" is the document that is the legal record of this transfer from one mortgagee to another. In a typical transaction, when the mortgagee sells the debt to another bank, an assignment is recorded, and the promissory note is endorsed (signed over) to the new bank.

These documents are separate, and each has its own distinct set of rules that govern how they're exchanged between banks.

An assignment transfers all the original mortgagee's interest under the mortgage or deed of trust to the new bank. Generally, the mortgage or deed of trust is recorded shortly after the mortgagors sign it, and, if the mortgage is subsequently transferred, each assignment is recorded in the county land records.

Courts have dismissed some foreclosure cases when the foreclosing party didn't have an assignment. But some states don't allow borrowers to challenge the legality of assignments, saying they don't have standing .

And certain states follow the general rule that "a mortgage follows the note." So, a missing assignment of mortgage won't necessarily stop a foreclosure. If the foreclosing party is clearly entitled to enforce the promissory note, the court may allow a foreclosure to go ahead even if a valid assignment doesn't exist. Whether a written, recorded assignment is needed depends on state law.

When a loan changes hands, the promissory note is endorsed (signed over) to the new owner of the loan. In some cases, the note is endorsed in blank, which makes it a bearer instrument under Article 3 of the Uniform Commercial Code. So, any party that possesses the note has the legal authority to enforce it.

A n entity that owns the loan has standing to initiate a foreclosure .

Assignments and endorsements prove which party owns the debt and, therefore, may bring the foreclosure action. If the documentation isn't correct or complete in your case, you might have a defense against a foreclosure.

If you're facing a foreclosure and think the foreclosing party in your case doesn't have the right documentation, consider talking to an attorney who can give you information about the laws in your state, let you know whether an argument based on the right to foreclose, called "standing," is likely to be successful in your case, and give you advice about what to do in your particular circumstances.

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Collateral Assignment of Notes and Liens, dated as of June 3, 2011 and effective as of May 5, 2011, by and between MNHP Note Holder, LLC and Patriot Bank

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				Jim Franer
	Brett C. Moody

 

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Sample Collateral Assignment of Note and Mortgage Doc

Does anyone have a sample of how this document is written? Would obviously have an attorney modify for my state but would like to see how this is written.  Appreciate any help! Copied from another post: A collateral assignment is the transfer of ownership rights of an asset from a borrower to a lender (e.g. one investor to one note), in exchange for the granting of some type of loan. This requires 2 documents, a promissory note with the new lender and the Collateral Assignment of Note Deed of Trust document (including a legal description of the property that is tied to the note). The Collateral Assignment of Note Deed of Trust document gets recorded with the county so you would have first claim to the note if the terms were ever defaulted on. 

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• Texas Collateral Assignment of Note and Liens

Travis Texas Collateral Assignment of Note and Liens

Description.

Travis Texas Collateral Assignment of Note and Liens refers to a legal agreement involving the transfer of security interest in a promissory note and the associated liens to a third party as collateral. This type of arrangement is commonly used to secure a loan or protect a lender's interest in the collateral. In Travis County, Texas, there are various types of Collateral Assignment of Note and Liens, including real estate liens, vehicle liens, and business assets liens. Each type is designed to serve a specific purpose and provide adequate safeguards to lenders or creditors. 1. Real Estate Liens: A Collateral Assignment of Note and Liens related to real estate involves using property as collateral to secure repayment of a loan. This lien is typically recorded with the county clerk's office and serves as a legal claim against the property until the debt is fully repaid. 2. Vehicle Liens: Travis Texas Collateral Assignment of Note and Liens may also pertain to vehicles, such as cars, trucks, or boats. In this case, the lender holds a security interest in the vehicle until the loan is satisfied. If the borrower defaults on the loan, the lender may repossess and sell the vehicle to recover the outstanding debt. 3. Business Assets Liens: This type of Collateral Assignment of Note and Liens covers the assets of a business entity, such as equipment, inventory, accounts receivable, or intellectual property. By placing a security interest on these assets, a lender or creditor can claim them in the event of loan default or non-payment. Travis Texas Collateral Assignment of Note and Liens is an important legal mechanism in securing loans and protecting the interests of lenders or creditors. It ensures that there is a tangible asset to act as collateral, reducing the risk of financial loss in the event of default. Proper documentation and recording of these liens are crucial to establishing legal rights and preserving the lender's ability to exercise foreclosure or repossession remedies.

How to fill out Travis Texas Collateral Assignment Of Note And Liens ?

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Form rating, form popularity, how do i file a ucc3 termination.

3 termination statement (a ?Termination?) is a required filing that terminates a security interest that has been perfected by a UCC1 filing. A Termination for personal property is accomplished by completing and filing form UCC3 with the Secretary of State's office in the appropriate state.

What is UCC3 termination New York?

UCC Financing Statement Amendment (Form UCC3) Uniform Commercial Code Financing Statement Amendment is for used for the termination, continuation, and/or transfer changes to Financing Statement.

How do you explain a UCC filing?

1 filing is a legal form that a creditor files to secure its interest in a borrower's property or assets used as collateral for a loan. The filing serves as a public notice that the creditor has the right to take possession of the assets as repayment on the underlying debt.

How do you make a UCC filing?

To help, we've compiled an essential guide on how to navigate filing a UCC record. Pay attention to detail in debtor name requirements.Decide where to file UCC financing statements by location of the debtor.Allow ample filing time depending on jurisdiction.Ensure all relevant records are uncovered.

How do I fill out a UCC-1 form?

How to complete a UCC1 (Step by Step) Filer Information. Name and phone number of contact at filer. Email contact at filer.Debtor Information. Organization or individual's name. Mailing address. Secured Party Information. Organization or individual's name. Mailing address. Collateral Information. Description of collateral.

How do I terminate a UCC in California?

Visit your secretary of state's office. To do so you will generally need to make a trip in person down to your secretary of state's office. Once there, you will be able to swear under oath that you've satisfied the debt in full and wish to request for the UCC-1 filing to be removed.

What is the difference between a lien and a UCC filing?

A UCC filing creates a lien against the collateral a borrower pledges for a business loan. The uniform commercial code is a set of rules governing commercial transactions. When a business owner receives financing secured by collateral, a lender can file a UCC lien against the assets pledged by the business owner.

Does a UCC-1 need to be signed?

UCC-1 Financing Statements do not have to be signed by either the Debtor or Secured Party; however, they must be authorized.

Can an individual file a UCC-1?

In theory, anyone can file a UCC-1 against anyone else. To protect both secured creditors and debtors, Article 9 has strict requirements that must be met for a filed UCC-1 to be effective. One of those requirements is that the financing statement must be authorized by the debtor.

How do I file a UCC dispute?

Travis texas collateral assignment of note and liens related searches.

• ucc3 subordination
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• how do i file a ucc-3 termination
• secretary of state lien search
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Interesting Questions

What is a travis collateral assignment of note and liens403805.

A Travis Collateral Assignment of Note and Liens403805 is a legal document that allows the transfer of collateral ownership from one party to another in order to secure a loan or debt.

Who can benefit from a Travis Collateral Assignment of Note and Liens403805?

Any individual or business that needs to secure a loan by providing collateral can benefit from a Travis Collateral Assignment of Note and Liens403805.

What is the purpose of a collateral assignment?

The purpose of a collateral assignment is to provide security for a loan by transferring ownership rights of a collateral to the lender, giving them the right to seize and sell the collateral in case of default.

What can be used as collateral?

Various assets can be used as collateral, such as real estate, vehicles, stocks, bonds, or valuable possessions. The specific collateral depends on the agreement between the borrower and the lender.

How does a Travis Collateral Assignment of Note and Liens403805 protect the lender?

By signing a Travis Collateral Assignment of Note and Liens403805, the borrower grants the lender the right to claim the collateral if the borrower fails to repay the loan as agreed. It provides a legal recourse for the lender to recover their funds.

Can the borrower continue using the collateral after assigning it?

In most cases, the borrower can continue using the collateral even after assigning it as long as they fulfill their loan obligations. However, if the borrower defaults on the loan, the lender has the right to seize and sell the collateral.

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A COLLATERAL ASSIGNMENT OF NOTES Sample Clauses

Related Clauses

• Collateral Assignment
• Assignment of Collateral
• Assignment, Mortgage, Etc
• Assignment of Contract
• Assignment of Contracts
• Replacement of Notes
• Amendment of Notes
• Repayment of Notes
• Prepayment of Notes
• Assignment of Leases and Rents

Related to A COLLATERAL ASSIGNMENT OF NOTES

Collateral Assignment The Owner may assign this contract as collateral security. The Company is not responsible for the validity or effect of a collateral assignment. The Company will not be responsible to an assignee for any payment or other action taken by the Company before receipt of the assignment in writing at its Home Office. The interest of any beneficiary will be subject to any collateral assignment made either before or after the beneficiary is named. A collateral assignee is not an Owner. A collateral assignment is not a transfer of ownership. Ownership can be transferred only by complying with Section 8.2.

Assignment of Collateral There is no material collateral securing any Mortgage Loan that has not been assigned to the Purchaser.

Assignment, Mortgage, Etc 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. Transfer of the majority of the stock of a corporate Tenant or the majority partnership interest of a partnership Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting.

Assignment of Contract Contractor shall not assign or otherwise transfer its rights under this Agreement, without the prior written consent of Client. Any attempt to make such an assignment without Client's consent shall be void. Client's consent shall not be reasonably withheld.

Assignment of Contracts On the Initial Borrowing Date, the Borrower shall have duly authorized, executed and delivered a valid and effective assignment by way of security in favor of the Collateral Agent of all of the Borrower’s present and future interests in and benefits under (x) the Construction Contract, (y) each Refund Guarantee and (z) the Construction Risk Insurance (it being understood that the Borrower will use commercially reasonable efforts to have the underwriters of the Construction Risk Insurance accept and endorse on such insurance policy a loss payable clause substantially in the form set forth in Part 3 of Schedule 2 to the Assignment of Contracts (as defined below), and it being further understood that certain of the Refund Guarantee and none of the Construction Risk Insurances will have been issued on the Initial Borrowing Date), which assignment shall be substantially in the form of Exhibit J hereto or otherwise reasonably acceptable to the Lead Arrangers and the Borrower and customary for transactions of this type, along with appropriate notices and consents relating thereto (to the extent incorporated into or required pursuant to such Exhibit or otherwise agreed by the Borrower and the Facility Agent), including, without limitation, those acknowledgments, notices and consents listed on Schedule 5.07 (as modified, supplemented or amended from time to time, the “Assignment of Contracts”) provided that, if any Refund Guarantee issued to the Borrower on the Initial Borrowing Date shall have been issued by KfW IPEX-Bank GmbH, then such Refund Guarantee shall be charged pursuant to a duly authorized, executed and delivered, valid and effective charge of any such Refund Guarantee in the form of Exhibit Q hereto or otherwise in a form reasonably acceptable to the Lead Arrangers and the Borrower and customary for transactions of this type, along with appropriate notices and consents relating thereto (to the extent incorporated into or required pursuant to such Exhibit or otherwise agreed by the Borrower and the Facility Agent) (as modified, supplemented or amended from time to time, the “Charge of KfW Refund Guarantees”).

Replacement of Notes Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

Amendment of Notes Subject to Section 3 hereof, any of the terms or provisions present in the Notes that relate to any of the provisions of the Indenture as amended by this Supplemental Indenture shall also be amended, mutatis mutandis, so as to be consistent with the amendments made by this Supplemental Indenture.

Repayment of Notes Each of the parties hereto agrees that all repayments of the Notes (including any accrued interest thereon) by the Company (other than by conversion of the Notes) will be paid pro rata to the holders thereof based upon the principal amount then outstanding to each of such holders.

Prepayment of Notes No prepayment of the Notes may be made except to the extent and in the manner expressly provided in this Agreement.

Assignment of Leases and Rents There exists as part of the related Mortgage File an Assignment of Leases (either as a separate instrument or incorporated into the related Mortgage). Subject to the Permitted Encumbrances and the Title Exceptions, each related Assignment of Leases creates a valid first-priority collateral assignment of, or a valid first-priority lien or security interest in, rents and certain rights under the related lease or leases, subject only to a license granted to the related Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the related leased property, except as the enforcement thereof may be limited by the Standard Qualifications. The related Mortgage or related Assignment of Leases, subject to applicable law, provides that, upon an event of default under the Mortgage Loan, a receiver is permitted to be appointed for the collection of rents or for the related Mortgagee to enter into possession to collect the rents or for rents to be paid directly to the Mortgagee.