Michigan Uniform Assignment of Rents Act

Michigan recently signed into law the Michigan Uniform Assignment of Rents Act (the “MUARA” or the “Act”), MCL 554.1051 et seq, which goes into effect on September 22, 2022. The MUARA changes how an assignment of rents is treated under Michigan law for collection and bankruptcy purposes. Pursuant to the MUARA, an assignment of rents is now considered a security interest, rather than an absolute assignment of the rents.

Any assignment of rents previously properly perfected and recorded does not have to be amended or otherwise redone. Pending litigation as of September 21, 2022 will be treated under the prior law, and litigation filed on September 22, 2022 or later will be governed by the MUARA.

Here are the highlights of the new Act:

1. Clarifies that an assignment of rents may be included in the mortgage (or other enforceable security interest). A separate assignment may still be prepared and recorded, but it is no longer necessary.
2. The term “rents” is broadly defined.
3. Act applies to all commercial property (except properties where 1-4 dwelling units are located, which have special rules).
4. Clarifies that an assignment of rents creates a security interest, not an absolute assignment of rents (ownership of rents remains with the debtor).
5. The steps required to perfect an assignment of rents are now codified, and upon recording, the security interest is fully perfected.
6. Lien priority is consistent with the UCC – 1^st in time is 1^st in right, and a properly recorded assignment will have priority over a later judgment creditor.
7. Enforcement – If a lender needs to enforce its assignment of rents, the lender will need to record a notice and serve it on the borrower, which will entitle the lender to receive the gross rents.
   1. In this scenario, the lender will also retain the right to foreclose the property by advertisement.
8. If the lender is entitled to receive the rents, then the borrower must turn over to lender any gross rents that it receives.
   1. There is a penalty of actual attorney fees if the borrower is found to have improperly diverted rents away from lender.
9. There are some practical issues for any tenants of the borrower that may have to be resolved – who to pay; what’s proper notice from the lender; how to address setoffs; etc.
10. Receiverships – both the MUARA and the Michigan Receivership Act contain language governing receiverships, so there will be some interplay between the two statutes that will have to be resolved.

If you’re a lender, borrower, tenant, or just have questions about the new law, Demorest Law Firm can help.