Texas Commercial Law Firm

3. Rents. Texas law states that as a lienholder, the mortgagee is not the owner of the property, is not entitled to its possession and is not entitled to its rents. Taylor v. Brennan, 621 S.W.2d 592 (Tex. 1981). Consequently, the general rule in Texas is that the lienholder, even though they may hold an assignment of rents, has no rights in the rents prior to foreclosure and transfer of title. Id. Additionally, the general rule states further that after default, the secured party must take some type of affirmative action to enforce its assignment rights in the rents as collateral. Id. The rules stated above deal with what used to be the standard assignment of rents as collateral in Texas. The rule which has developed is that an absolute assignment of rentals operates to transfer the right to rentals automatically upon the happening of a specified condition, such as default. Id. The Texas Supreme Court reasoned that the absolute assignment does not create a security interest but instead passes title. Id. When trying to determine if a secured party has a right to collect rents prior to foreclosure, therefore, the security document granting rights in the rent must be reviewed.

If it is an absolute assignment pursuant to the terms of Taylor v. Brennan, the secured party should be able to collect rents in advance. In a more recent decision, the 5th Circuit found a particular assignment of rents clause to constitute an absolute assignment and pass to the secured party immediate title to the rent proceeds. FDIC v. International Property Management, Inc., 929 F.2d 1033 (5th Cir. 1991).

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