Assignment Of Rents: Absolute May Not Be So Absolute

In re MRI Beltline Industrial, L.P., 476 B.R. 917 (Bankr. N.D. Tex. 2012) –

In MRI Beltline the debtor moved for authority to use rents received from tenants of commercial buildings that it owned, and for a "carve out" to permit it to use rents for administrative expenses (including its attorney fees). In response, the mortgagee asserted that the debtor did not have any interest in the rents, and thus could not use them, because its assignment of rents was absolute.

Although a debtor is generally authorized to use its assets in the ordinary course of business, there are special rules applicable to "cash collateral" – meaning cash or cash equivalents in which both the bankruptcy estate and a third party have an interest. This specifically includes rents. To the extent that rents constitute cash collateral, the debtor must either get the consent of the mortgagee or court approval to use them.