Securing Your Security -A Lender’s Right to Litigation Proceeds

A 2003 case decided by the United States Circuit Court for the Ninth Circuit… should cause all lenders and their counsel to review and perhaps revise their standard forms of mortgages and deeds of trust to be sure all proceeds are properly assigned and payable to the lender.

Lenders making loans secured by real estate typically expect their security to include not only an interest in the property and improvements, but also all income and proceeds related to the property. For example, insurance proceeds recovered in connection with a casualty loss to the property are often paid to or controlled by the lender, not the owner. Similar provisions also are common for condemnation proceeds and for proceeds of any cause of action or litigation related to the property. A 2003 case decided by the United States Circuit Court for the Ninth Circuit, however, should cause all lenders and their counsel to review and perhaps revise their standard forms of mortgages and deeds of trust to be sure all