Your Commercial Property Is Foreclosed—What Happens to the Rent?
If you own a commercial property that generates rental income, facing foreclosure can not only raise the question of who gets the property. You may also wonder who gets the rent while the foreclosure is pending. In Florida, an assignment of leases and rents can give you, the mortgagee, a separate right to collect rental income after default. A 2023 case from Florida’s Second District Court of Appeal illustrates how that can happen even after a foreclosure judgment has already been entered.
The Case: Ferry v. E-Z Cashing, LLC
Suzanne Ferry owned a commercial property that she had financed with a mortgage in 2005. She had also assigned the leases and rents to the lender under a separate agreement in the lender’s favor. The lender later transferred those interests to Bayview Loan Servicing.
After Ferry defaulted, Bayview filed a foreclosure action. The trial court entered a consent final judgment of foreclosure in 2010. However, the judgment didn’t specifically address the separate assignment of leases and rents. Additionally, the foreclosure sale was delayed for nearly a decade after Ferry filed for bankruptcy. In 2019, Bayview assigned its interests to E-Z Cashing. After the bankruptcy stay was lifted in 2020, E-Z Cashing sought to continue the foreclosure proceedings and obtain the rental income from the property. The trial court ultimately ordered Ferry to turn over the leases and rents she received from April 2020 until the property was sold.
Now, under Florida law, an assignment of rents creates a lien in favor of the mortgagee, allowing the mortgagee to continue collecting rents without needing to foreclose on the underlying mortgage. This means that even if the property is foreclosed, the mortgagee retains the right to collect rents that were assigned to them.
Ferry challenged that order, arguing that the earlier foreclosure judgment had effectively removed E-Z Cashing’s rights to the rents based on the principle of merger. However, the court found no legal support for her merger theory. It emphasized that the assignment of leases and rents serves as additional security for the repayment of debt and remains enforceable even after a foreclosure judgment is entered.
Under Florida law, a borrower and a lender can separately agree that rental income will serve as security for the underlying debt. After default and the required formal written demand, the assignment can be enforced against rents in the borrower’s possession. That meant E-Z Cashing could collect rents from April 2020 until the foreclosure sales, even though Bayview
The appellate court’s ruling clarifies an important point: foreclosure of the mortgage and the assignees of leases and rents are separate actions. Therefore, the assignment doesn’t merge into the judgment, which, in this case, left E-Z Cashing with authority to collect rents from Ferry while also pursuing the sale of the foreclosed property.
This case shows that, as a property owner, you may still be liable for rental income even after foreclosure, depending on the terms of your lease agreement and any assignments made.
Contact Us for Legal Help
If your commercial property is facing foreclosure, contact our Miami real estate litigation lawyer at Valero Law today by calling 305-607-7011 to evaluate the order and discuss your options. We serve clients in Davie, Coconut Grove, Broward County, and Miami-Dade County.
Source:
scholar.google.com/scholar_case?case=12746212063613314532&q=Ferry+v.+E-Z+Cashing,+LLC&hl=en&as_sdt=4,10
