Barrett Henry is a Broker Associate at REMAX Collective with 23+ years of Florida real estate experience working with landlords, real estate investors, and homeowners in foreclosure situations involving rental properties. He provides direct service to Tampa Bay area clients and referral connections throughout all 67 Florida counties.
If you own rental property in Florida and are behind on the mortgage, your lender may have a powerful tool buried in your mortgage documents: the assignment of rents clause. Understanding this clause -- and when the lender can use it -- is essential for any landlord facing foreclosure.
What Is an Assignment of Rents Clause?
An assignment of rents clause is a provision in your mortgage or deed of trust that transfers your right to collect rent from tenants to the lender as additional collateral for the loan. When you signed your mortgage on a rental or investment property, you likely signed a document that included this clause -- it is standard in commercial mortgages and most investment property mortgages.
Under Florida Statute § 697.07, a properly recorded assignment of rents creates a specific lien on the property's rental income. This lien is enforceable as soon as the lender activates it following default. The lender does not need to wait for a final judgment of foreclosure to begin collecting rent.
This is very different from other types of mortgage enforcement. Most foreclosure tools (lis pendens, summary judgment, certificate of title) operate through court proceedings that take 9-18+ months in Florida. An assignment of rents can be activated with a simple written notice -- which is why it is so significant for landlords facing foreclosure.
How Lenders Activate an Assignment of Rents in Florida
Under F.S. § 697.07(2), a lender can activate an assignment of rents after a mortgage default by either:
- Written notice to the borrower-landlord. The lender sends written notice of the default and the activation of the assignment of rents clause. Once the borrower receives this notice, rents must be directed to the lender.
- Court appointment of a receiver. The lender files a motion for appointment of a receiver under F.S. Chapter 714. The receiver then takes management of the property, including collection of rents.
The written notice method is the most common and quickest. There is no court hearing required for a simple written activation notice -- the lender provides written notice of default and instructs the borrower and tenants that rent payments must be directed to the lender going forward.
What Happens When the Lender Activates the Assignment of Rents
When the assignment is activated, the practical effects are:
- Tenants must pay rent to the lender (or receiver) rather than to you. Tenants who receive proper notice and continue paying you may be required to pay again to the lender.
- You lose access to rental income that may have been covering your property expenses, mortgage payments, and personal income.
- The lender applies collected rentsto the outstanding loan balance, interest, and costs -- potentially reducing what you owe but under the lender's control.
- Tenant leases are not terminated. Tenants retain all rights under their leases and under Florida law. The change is purely in who receives payment.
Tenant Protections Under Florida Law
Florida Statute § 697.07(3) protects tenants who paid rent to the landlord in good faith before receiving notice of the assignment activation. A tenant who paid rent to you before the lender's notice arrived cannot be penalized for that payment. After receiving proper notice, the tenant's obligation shifts to the lender.
Florida's Residential Landlord and Tenant Act (F.S. Chapter 83) continues to protect tenants' rights throughout the foreclosure process. The activation of an assignment of rents does not change the tenant's right to habitability, proper notice before entry, return of security deposits, and other statutory protections. For more on tenant rights during foreclosure, see our guide on what happens to tenants in Florida foreclosure.
Court-Appointed Receivers: More Comprehensive Management
When the lender seeks appointment of a receiver under F.S. Chapter 714, the result is more comprehensive than a simple rent assignment. A receiver:
- Takes possession and management of the entire property
- Collects all rents and other income
- Pays property operating expenses (utilities, insurance, maintenance) from the collected income
- Reports to the court and files accountings
- Can undertake necessary repairs and maintenance
Lenders typically pursue receivership for larger multi-unit properties, properties in physical disrepair, or situations where the borrower-landlord is not maintaining the property or is diverting rental income. Receiver fees are paid from the property's income and add to the costs of the foreclosure.
How Assignment of Rents Affects Your Options
If the lender has activated an assignment of rents on your investment property, your loss mitigation options are affected. Consider the following:
- Loan modification negotiations: If rental income is your primary source of mortgage payment funds, an active assignment of rents creates a circular problem -- the lender is collecting your income but still demanding you resolve the arrears. Contact the servicer specifically about whether rental income collected under the assignment will be applied to a trial modification plan.
- Short sale: A short sale with a deficiency waiver remains viable. The rental income collected during the short sale marketing period is part of the net proceeds accounting that affects what the lender nets from the transaction.
- Selling before foreclosure: If the property has equity, a pre-foreclosure sale can pay off the lender and potentially leave you with proceeds. Clarify with the lender how rental income collected during escrow will be credited at closing.
- Bankruptcy stay: Filing for Chapter 13 bankruptcytriggers the automatic stay, which halts the lender's ability to collect rents outside the bankruptcy framework and allows you to restructure arrears through a reorganization plan.
Assignment of Rents and Primary Residences
If your primary residence has an assignment of rents clause (common if it was once an investment property or if you have a multi-unit building), and you vacated the property during the Florida foreclosure process and rented it out, the lender could activate the assignment and collect rent from your tenants. This is one reason why simply leaving a property and renting it out without communicating with the servicer can create additional complications.
If you are currently in a dismissed foreclosure situation or have a zombie title property that you are renting, the existing mortgage likely still has an assignment of rents clause that the lender could activate if they re-file the foreclosure.
Facing foreclosure on a rental or investment property? Get free help today -- no cost, no obligation.
