loan assignment clause

Loan Agreement: Assignment and Participation Clauses | Practical Law

Loan Agreement: Assignment and Participation Clauses

Practical law standard clauses 8-383-3066  (approx. 40 pages).

• Bankruptcy Basics
• Chapter 11 Bankruptcy
• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
• Debt Collectors and Consumer Rights
• Divorce and Bankruptcy
• Going to Court
• Property & Exemptions
• Student Loans
• Taxes and Bankruptcy
• Wage Garnishment

Understanding the Assignment of Mortgages: What You Need To Know

3 minute read • Upsolve is a nonprofit that helps you get out of debt with education and free debt relief tools, like our bankruptcy filing tool.  Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card.  Explore our free tool

A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

Upsolve Member Experiences

Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

Continue reading and learning!

It's easy to get debt help

Choose one of the options below to get assistance with your debt:

Considering Bankruptcy?

Our free tool has helped 13,821+ families file bankruptcy on their own. We're funded by Harvard University and will never ask you for a credit card or payment.

Private Attorney

Get a free evaluation from an independent law firm.

Learning Center

Research and understand your options with our articles and guides.

Already an Upsolve user?

Bankruptcy Basics ➜

• What Is Bankruptcy?
• Every Type of Bankruptcy Explained
• How To File Bankruptcy for Free: A 10-Step Guide
• Can I File for Bankruptcy Online?

Chapter 7 Bankruptcy ➜

• What Are the Pros and Cons of Filing Chapter 7 Bankruptcy?
• What Is Chapter 7 Bankruptcy & When Should I File?
• Chapter 7 Means Test Calculator

Wage Garnishment ➜

• How To Stop Wage Garnishment Immediately

Property & Exemptions ➜

• What Are Bankruptcy Exemptions?
• Chapter 7 Bankruptcy: What Can You Keep?
• Yes! You Can Get a Mortgage After Bankruptcy
• How Long After Filing Bankruptcy Can I Buy a House?
• Can I Keep My Car If I File Chapter 7 Bankruptcy?
• Can I Buy a Car After Bankruptcy?
• Should I File for Bankruptcy for Credit Card Debt?
• How Much Debt Do I Need To File for Chapter 7 Bankruptcy?
• Can I Get Rid of my Medical Bills in Bankruptcy?

Student Loans ➜

• Can You File Bankruptcy on Student Loans?
• Can I Discharge Private Student Loans in Bankruptcy?
• Navigating Financial Aid During and After Bankruptcy: A Step-by-Step Guide
• Filing Bankruptcy to Deal With Your Student Loan Debt? Here Are 3 Things You Should Know!

Debt Collectors and Consumer Rights ➜

• 3 Steps To Take if a Debt Collector Sues You
• How To Deal With Debt Collectors (When You Can’t Pay)

Taxes and Bankruptcy ➜

• What Happens to My IRS Tax Debt if I File Bankruptcy?
• What Happens to Your Tax Refund in Bankruptcy

Chapter 13 Bankruptcy ➜

• Chapter 7 vs. Chapter 13 Bankruptcy: What’s the Difference?
• Why is Chapter 13 Probably A Bad Idea?
• How To File Chapter 13 Bankruptcy: A Step-by-Step Guide
• What Happens When a Chapter 13 Case Is Dismissed?

Going to Court ➜

• Do You Have to Go To Court to File Bankruptcy?
• Telephonic Hearings in Bankruptcy Court

Divorce and Bankruptcy ➜

• How to File Bankruptcy After a Divorce
• Chapter 13 and Divorce

Chapter 11 Bankruptcy ➜

• Chapter 7 vs. Chapter 11 Bankruptcy
• Reorganizing Your Debt? Chapter 11 or Chapter 13 Bankruptcy Can Help!

State Guides ➜

• Connecticut
• District Of Columbia
• Massachusetts
• Mississippi
• New Hampshire
• North Carolina
• North Dakota
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• West Virginia

Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families resolve their debt and fix their credit using free software tools. Our team includes debt experts and engineers who care deeply about making the financial system accessible to everyone. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations.

To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.

Assignment Of Leases And Rents

Jump to section, what is an assignment of leases and rents.

The assignment of leases and rents, also known as the assignment of leases rents and profits, is a legal document that gives a mortgage lender right to any future profits that may come from leases and rents when a property owner defaults on their loan. This document is usually attached to a mortgage loan agreement.

Assignment of leases and rents allows lenders to a degree of financial protection in case a loan default occurs. This document is an agreement made between a borrower and a lender of mortgage loans. It often details an exact amount the lender will be entitled to if a default happens.

Common Sections in Assignments Of Leases And Rents

Below is a list of common sections included in Assignments Of Leases And Rents. These sections are linked to the below sample agreement for you to explore.

Assignment Of Leases And Rents Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.9 10 d368735dex109.htm ASSIGNMENT OF LEASES AND RENTS , Viewed October 4, 2021, View Source on SEC .

Who Helps With Assignments Of Leases And Rents?

Lawyers with backgrounds working on assignments of leases and rents work with clients to help. Do you need help with an assignment of leases and rents?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate assignments of leases and rents. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Assignment Of Leases And Rents Lawyers

Diana is a registered patent attorney and licensed to practice law in Florida and in federal courts in Florida and in Texas. For nearly a decade, Diana has been known as the go-to brand builder, business protector, and rights negotiator. Diana works with individual inventors, startups, and small to medium-sized closely held business entities to build, protect, and leverage a robust intellectual property portfolio comprising patents, trademarks, copyrights, trade dress, and trade secrets.

Firm rated best ADR firm for Wisconsin and won an award for cultural innovation in dispute resolution from acquisition international magazine in 2016 and it was rated "Best of Brookfield" by Best Businesses in 2015. Attorney Maxwell C. Livingston was rated 10 best in Labor & Employment Law by American Institute of Legal Counsel and 40 Under 40 by American Society of Legal Advocates for 2016; he also won 10 Best by American Institute of Family Law Attorneys. He is licensed in Wisconsin in all state and federal courts, and in the 7th Circuit Court of Appeals, wherein he won a landmark decision in McCray v. Wielke.

I am a sole practitioner who has been in practice for over 25 years. I have represented many small businesses during this time. Let me bring my expertise to your business.

Experienced attorney and tax analyst with a history of working in the government and private industry. Skilled in Public Speaking, Contract Law, Corporate Governance, and Contract Negotiation. Strong professional graduate from Penn State Law.

Respected, driven, ethical, and high energy legal and business professional with strong focus on litigation, contracts and compliance issues. Critical management experience includes client development, developing core initiatives, and forecasting risk in major corporations. Strong legal research, analytical and problem solving skills with demonstrated adaptability in a multifaceted legal practice including delivering high value results in a Fortune 10 environment. Core competencies include: Tactical and strategic legal direction and support to clients which includes contract negotiation, drafting and review, business planning, and a passion for relationship management. Excellent legal research, writing, analytical and problem solving skills including legal training and compliance with regulatory requirements and corporate policies. Coordinates with in-house legal and business resources for team building with excellent verbal communication skills, coaching, and leadership.

Brandon is a Texas Super Lawyer®, meaning he is among the top 2.5% of attorneys in his state. He has designed his practice to provide a unique ecosystem of legal support services to business and entrepreneurs, derived from his background as a federal district law clerk, published biochemist, and industry lecturer. Brandon is fluent in Spanish, an Eagle Scout, and actively involved with the youth in his community. He loves advocating for his clients and thinks he may never choose to retire.

Richard is a wizard at taking on bureaucracies and simply getting the job done. His clients value his straight-forward counsel and his ability to leverage a top-notch legal staff for efficient and effective results. Richard is a professional engineer, professor of law, and has been named among the top 2.5% of attorneys in Texas by the Super Lawyers®. When he is not driving results for his clients, Richard can be found with his small herd on his Texas homestead.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Real Estate lawyers by top cities

• Austin Real Estate Lawyers
• Boston Real Estate Lawyers
• Chicago Real Estate Lawyers
• Dallas Real Estate Lawyers
• Denver Real Estate Lawyers
• Houston Real Estate Lawyers
• Los Angeles Real Estate Lawyers
• New York Real Estate Lawyers
• Phoenix Real Estate Lawyers
• San Diego Real Estate Lawyers
• Tampa Real Estate Lawyers

Assignment Of Leases And Rents lawyers by city

• Austin Assignment Of Leases And Rents Lawyers
• Boston Assignment Of Leases And Rents Lawyers
• Chicago Assignment Of Leases And Rents Lawyers
• Dallas Assignment Of Leases And Rents Lawyers
• Denver Assignment Of Leases And Rents Lawyers
• Houston Assignment Of Leases And Rents Lawyers
• Los Angeles Assignment Of Leases And Rents Lawyers
• New York Assignment Of Leases And Rents Lawyers
• Phoenix Assignment Of Leases And Rents Lawyers
• San Diego Assignment Of Leases And Rents Lawyers
• Tampa Assignment Of Leases And Rents Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

What Are Assignment and Novation Clauses in a Loan Agreement?

By Jake Rickman

Updated on 12 September 2022 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

• What Are Novation and Assignment? 

Novation and Assignment in Practice

• What Assignment Means for Your Business 
• Key Takeaways 

Frequently Asked Questions

If you get to the final stage of a business loan application, the bank will present you with a loan agreement . While some terms in the loan agreement may be familiar, others might be vaguer. For example, the lender’s right to ‘assign or transfer all its rights and obligations by novation’. This article will explain what novation and assignment mean in your loan agreement, how it operates, and how this impacts your business. 

What Are Novation and Assignment? 

Novation is a legal process that transfers rights and obligations under a contract to a third party with both parties’ consent. 

On the other hand, assignment is the right to transfer the contractual obligations of one party to a third party, regardless of whether the other party to the contract consents. 

To understand how novation and assignment apply to your loan agreement and how these rights might ultimately affect your business, it is important to consider novation and assignment in practice.

The law does not easily release parties from their contractual obligations. Otherwise, contracts would not have much legal effect. For example, after your business signs a loan agreement, you cannot simply notify the bank that another person or company will make the loan repayments on your business’s behalf. Likewise, unless the contract states otherwise, the bank must make the loan money available to your business and cannot rely on another party to do so on its behalf. 

Hence, the bank may rely on clauses in the loan agreement to release them from their obligations. Consider the following example. 

Bank A provides your company with a revolving credit facility of up to £1m. However, a year goes by, and you have not drawn on the facility. Consequently, Bank A may no longer want to honour its contractual obligation to your company.

However, Bank A cannot just transfer the loan without your approval. Hence, if you consent to Bank A’s request to sell the loan to Bank B, the law calls this novation. This means that you are essentially creating a new loan contract with Bank B. After novation, the original party, Bank A, disappears.

Even if you are not prepared to consent to Bank A’s request, it may still want to transfer the loan. Where the loan agreement contains an assignment clause, Bank A may nevertheless transfer its rights to benefit from your business’ repayment to Bank B. The law calls this an assignment.

What Assignment Means for Your Business 

Provided a bank has notified your business in writing that it intends to transfer its rights to a named third party, you are obligated to make payments to the new bank. 

If the bank does not specify the third party’s identity, your obligations do not change. 

You should also know that the bank your business initiated the loan agreement with is still obligated to provide you with any money it has promised. If it does not, you may have a legal claim against the bank. 

Key Takeaways 

Assignment and novation in a loan agreement refer to a lender’s ability to transfer its loan obligations to a third party. If the bank sells the benefit under the loan agreement (i.e. your loan repayments) to another party, this is called an assignment. If the bank notifies you that it has assigned its rights to a third party, you must direct repayments to the third party provided it informs you of the third party’s identity. The bank can also ask you to release it from its obligations to make money available to your business. This is called novation. However, if you do not consent, the bank must continue to honour any terms in the initial loan agreement. 

If you need help understanding your loan agreement, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page .

An assignment in a loan agreement is where the bank sells its rights to receive your loan repayments to another lender. Provided you are properly notified, you must direct any future payments to the third party. Notably, an assignment does not release a bank from any obligations it owes you.

A novation is where the borrower consents to the lender’s request to transfer the lender’s rights and obligations under a loan agreement to a third party lender. The effect is that you will now owe your obligations under the loan agreement to the third party. In turn, the new lender carries out the initial lender’s obligations. You can enforce these obligations against the new lender.

We appreciate your feedback – your submission has been successfully received.

Register for our free webinars

A roadmap to business success: how to franchise in the uk, corporate governance 101: responsibilities for directors, business divorces: exiting directors and shareholders from your company, contact us now.

Fill out the form and we will contact you within one business day

Related articles

Different Types of Promissory Notes in England

How Do I Finance an Acquisition?

5 Tips When Purchasing a Business in England and Wales

Commercial Lease Agreements in England and Wales

We’re an award-winning law firm

2023 Economic Innovator of the Year Finalist - The Spectator

2023 Law Company of the Year Finalist - The Lawyer Awards

2023 Future of Legal Services Innovation - Legal Innovation Awards

2021 Fastest Growing Law Firm in APAC - Financial Times

• Skip to primary navigation
• Skip to main content
• Skip to primary sidebar
• Skip to footer

Legal Templates

Home Business Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

Related Documents

• Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Contract : An agreement in which each party agrees to an exchange, typically involving money, goods, or services.
• Lease/Rental Agreement : A lease agreement is a written document that officially recognizes a legally binding relationship between two parties -- a landlord and a tenant.
• Legal Resources
• Partner With Us
• Terms of Use
• Privacy Policy
• Do Not Sell My Personal Information

The document above is a sample. Please note that the language you see here may change depending on your answers to the document questionnaire.

Thank you for downloading!

How would you rate your free template?

Click on a star to rate

Assignment of rents

Assignment of rents clause samples

Section 1.2 Assignment of Rents. Borrower hereby absolutely and unconditionally assigns to Lender and Trustee all of Borrower's right, title and interest in and to all current and future Leases and Rents; it being intended by Borrower that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of the Assignment of Leases, the Cash Management Agreement, and Section 7.l(h) of this Deed of Trust, Lender grants to Borrower a revocable license to collect, receive, use and enjoy the Rents. Borrower shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums.

03/25/2020 (Lodging Fund REIT III, Inc.)

Assignment of Rents. Borrower hereby presently and unconditionally assigns to Lender and Trustee a security interest in all of Borrower's right, title and interest in and to all current and future Leases and Rents; whether now owned by Borrower or hereafter acquired and whether now existing or hereafter corning into existence, as security for repayment of the Debt and performance of the Obligations and to provide a source of future payment of the Debt, it being intended by Borrower that this assignment constitutes a present, unconditional assignment that is immediately effective.

Assignment of Rents. Borrower hereby presently and unconditionally assigns to LenderandTrusteeasecurityinterestinallofBorrower'sright,titleandinterestin andtoallcurrentandfutureLeasesandRents;whethernowownedbyBorroweror hereafter acquired and whether now existing or hereafter coming into existence, as security for repayment of the Debt and performance of the Obligations and to provide a source of future payment of the Debt, it being intended by Borrower that thisassignmentconstitutesapresent,unconditional assignmentthatisimmediately effective.

Assignment of Rents. Mortgagor hereby absolutely assigns and transfers to Mortgagee all the leases, rents, issues and profits of the Property (collectively “Rents”). Although this assignment is effective immediately, so long as no Default exists, Mortgagee gives to and confers upon Mortgagor the privilege under a revocable license to collect as they become due, but not prior to accrual, the Rents and to demand, receive and enforce payment, give receipts, releases and satisfactions, and sue in the name of Mortgagor for all such Rents. Mortgagor represents there has been no prior assignment of leases or Rents, and agrees not to further assign such leases or Rents. Upon any occurrence of Default, the license granted to Mortgagor herein shall be automatically revoked without further notice to or demand upon Mortgagor, and Mortgagee shall have the right, in its discretion, without notice, by agent or by a receiver appointed by a court, and without regard to the adequacy of any security for the Obligations, (i) to enter upon and take possession of the Property, (ii) notify tenants, subtenants and any property manager to pay Rents to Mortgagee or its designee, and upon receipt of such notice such persons are authorized and directed to make payment as specified in the notice and disregard any contrary direction or instruction by Mortgagor, and (iii) in its own name, sue for or otherwise collect Rents, including those past due, and apply Rents, less costs and expenses of operation and collection, including attorneys’ fees, to the Obligations in such order and manner as Mortgagee may determine or as otherwise provided for herein. Mortgagee’s exercise of any one or more of the foregoing rights shall not cure or waive any Default or notice of Default hereunder.

08/14/2020 (Legacy Education Alliance, Inc.)

Section 1.2. Assignment of Rents. Mortgagor hereby assigns to Mortgagee all of Mortgagor’s right, title and interest in and to all current and future Leases and Rents; it being intended by Mortgagor that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of Section 8.1(h) of this Security Instrument, Mortgagee grants to Mortgagor a revocable license to (i) collect, receive, use and enjoy the Rents and Mortgagor shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums, and (ii) enforce the terms of, and perform the obligations of the landlord under, the Leases.

05/12/2017 (Phillips Edison Grocery Center REIT III, Inc.)

The security granted to the Junior Lender pursuant to the Second Trust Deed and the Assignment of Rents is subordinate to the rights of Southwest Farms, Inc. (the “ Senior Lender ”) as set forth in the Deed of Trust, Security Agreement and Financing Statement dated as of August 7, 2015 granted by EWSD in favor of Senior Lender and the Assignment of Rents and Leases by and between EWSD and Senior Lender dated as of August 7, 2015. Such subordination is documented in a Subordination Agreement dated as of August 23, 2016 by and among Senior Lender, Junior Lender, Company, EWSD, and Pueblo Agriculture Supply and Equipment, LLC, another wholly-owned subsidiary of the Company, as amended by a First Amendment to Subordination Agreement dated as of September 19, 2016 (collectively, the “ Subordination Agreement ”) pursuant to which Senior Lender consented to the Second Trust Deed and the Assignment of Rents. The Subordination Agreement also provides that the Junior Lender may not increase the principal amount of indebtedness pursuant to the Securities Purchase Agreement beyond $1,500,000.

12/21/2017 (Notis Global, Inc.)

Cut contract prep time in half for free

Build document automations that allow you, your staff, and your clients to auto-populate contract templates.

“ I've found it very easy to use. It allows me to work quickly, get something straight from my head and out into the public.”

Partner, Siskind Susser PC

2500 Executive Parkway Suite 300 Lehi, Utah 84043 (866) 638-3627

Level 11, 1 Margaret Street Sydney NSW 2000 Australia +61 2 8310 4319

8th Floor South Reading Bridge House George Street Reading RG1 8LS +44 20 3129 9324

Latin America

Mexico +52 55 5985 3005

Brazil +55 21 4040 4623

• How to Successfully Switch Your DMS
• DocuSign + NetDocuments
• How Ice Miller Adopted the Cloud Completely Remote
• Case Studies
• Resource Library
• Partner Integrations
• App Directory
• Locate a Partner
• Partner Portal
• Become a Partner

© NetDocuments Software, Inc.

• Terms of Use
• Privacy policy
• Cookie policy
• Privacy policy for california residents

• Deals Funded
• Deals in Process

Testimonials

An assignment clause (AC) is an important part of many contracts, especially for real estate. In this article we discuss:

• What is an Assignment Clause? (with Example)
• Anti-Assignment Clauses (with Example)
• Non-Assignment Clauses
• Important Considerations
• How Assets America ® Can Help

Frequently Asked Questions

What is an assignment clause.

An AC is part of a contract governing the sale of a property and other transactions. It deals with questions regarding the assignment of the property in the purchase agreement. The thrust of the assignment clause is that the buyer can rent, lease, repair, sell, or assign the property.

To “assign” simply means to hand off the benefits and obligations of a contract from one party to another. In short, it’s the transfer of contractual rights.

In-Depth Definition

Explicitly, an AC expresses the liabilities surrounding the assignment from the assignor to the assignee. The real estate contract assignment clause can take on two different forms, depending on the contract author:

• The AC states that the assignor makes no representations or warranties about the property or the agreement. This makes the assignment “AS IS.”
• The assignee won’t hold the assignor at fault. It protects the assignor from damages, liabilities, costs, claims, or other expenses stemming from the agreement.

The contract’s assignment clause states the “buyer and/or assigns.” In this clause, “assigns” is a noun that means assignees. It refers to anyone you choose to receive your property rights.

The assignment provision establishes the fact that the buyer (who is the assignor) can assign the property to an assignee. Upon assignment, the assignee becomes the new buyer.

The AC conveys to the assignee both the AC’s property rights and the AC’s contract obligations. After an assignment, the assignor is out of the picture.

What is a Lease Assignment?

Assignment Clause Example

This is an example of a real estate contract assignment clause :

“The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should be assigning default.”

Apply For Financing

Assignment provision.

An assignment provision is a separate clause that states the assignee’s acceptance of the contract assignment.

Assignment Provision Example

Here is an example of an assignment provision :

“Investor, as Assignee, hereby accepts the above and foregoing Assignment of Contract dated XXXX, XX, 20XX by and between Assignor and ____________________ (seller) and agrees to assume all of the obligations and perform all of the duties of Assignor under the Contract.”

Anti-Assignment Clauses & Non-Assignment Clauses

An anti-assignment clause prevents either party from assigning a contract without the permission of the other party. It typically does so by prohibiting payment for the assignment. A non-assignment clause is another name for an anti-assignment clause.

Anti-Assignment Clause Example

This is an anti-assignment clause example from the AIA Standard Form of Agreement:

” The Party 1 and Party 2, respectively, bind themselves, their partners, successors, assigns, and legal representatives to the other party to this Agreement and to the partners, successors, assigns, and legal representatives of such other party with respect to all covenants of this Agreement. Neither Party 1 nor Party 2 shall assign this Agreement without the written consent of the other.”

Important Considerations for Assignment Contracts

The presence of an AC triggers several important considerations.

Assignment Fee

In essence, the assignor is a broker that brings together a buyer and seller. As such, the assignor collects a fee for this service. Naturally, the assignor doesn’t incur the normal expenses of a buyer.

Rather, the new buyer assumes those expenses. In reality, the assignment fee replaces the fee the realtor or broker would charge in a normal transaction. Frequently, the assignment fee is less than a regular brokerage fee.

For example, compare a 2% assignment fee compared to a 6% brokerage fee. That’s a savings of $200,000 on a $5 million purchase price. Wholesalers are professionals who earn a living through assignments.

Frequently, the assignor will require that the assignee deposit the fee into escrow. Typically, the fee is not refundable, even if the assignee backs out of the deal after signing the assignment provision. In some cases, the assignee will fork over the fee directly to the assignor.

Assignor Intent

Just because the contract contains an AC does not obligate the buyer to assign the contract. The buyer remains the buyer unless it chooses to exercise the AC, at which point it becomes the assignor. It is up to the buyer to decide whether to go through with the purchase or assign the contract.

Nonetheless, the AC signals the seller of your possible intent to assign the purchase contract to someone else. For one thing, the seller might object if you try to assign the property without an AC.

You can have serious problems at closing if you show up with a surprise assignee. In fact, you could jeopardize the entire deal.

Another thing to consider is whether the buyer’s desire for an AC in the contract will frighten the seller. Perhaps the seller is very picky about the type of buyer to whom it will sell.

Or perhaps the seller has heard horror stories, real or fake, about assignments. Whatever the reason, the real estate contract assignment clause might put a possible deal in jeopardy.

Chain of Title

If you assign a property before the closing, you will not be in the chain of title. Obviously, this differs from the case in which you sell the property five minutes after buying it.

In the latter case, your name will appear in the chain of title twice, once as the buyer and again as the seller. In addition, the latter case would involve two sets of closing costs, whereas there would only one be for the assignment case. This includes back-to-back (or double) closings.

Enforceability

Assignment might not be enforceable in all situations, such as when:

• State law or public policy prohibits it.
• The contract prohibits it.
• The assignment significantly changes the expectations of the seller. Those expectations can include decreasing the value of the property or increasing the risk of default.

Also note that REO (real estate owned) properties, HUD properties, and listed properties usually don’t permit assignment contracts. An REO property is real estate owned by a bank after foreclosure. Typically, these require a 90-day period before a property can be resold.

How Assets America Can Help

The AC is a portion of a purchase agreement. When a purchase involves a commercial property requiring a loan of $10 million or greater, Assets America ® can arrange your financing.

We can finance wholesalers who decide to go through with a purchase. Alternatively, we can finance assignees as well. In either case, we offer expedient, professional financing and many supporting services. Contact us today for a confidential consultation.

What rights can you assign despite a contract clause expressly prohibiting assignment?

Normally, a prohibition against assignment does not curb the right to receive payments due. However, circumstances may cause the opposite outcome. Additionally, prohibition doesn’t prevent the right to money that the contract specifies is due.

What is the purpose of an assignment of rents clause in a deed of trust and who benefits?

The assignment of rents clause is a provision in a mortgage or deed of trust. It gives the lender the right to collect rents from mortgaged properties if the borrower defaults. All incomes and rents from a secured property flow to the lender and offset the outstanding debt. Clearly, this benefits the lender.

What is in assignment clause in a health insurance contract?

Commonly, health insurance policies contain assignment of benefits (AOB) clauses. These clauses allow the insurer to pay benefits directly to health care providers instead of the patient. In some cases, the provider has the patient sign an assignment agreement that accomplishes the same outcome. The provider submits the AOB agreement along with the insurance claim.

What does “assignment clause” mean for liability insurance?

The clause would allow the assignment of proceeds from a liability award payable to a third party. However, the insured must consent to the clause or else it isn’t binding. This restriction applies only before a loss. After a first party loss, the insurer’s consent no longer matters.

Related Articles

• Intercreditor Agreements – Everything You Need to Know
• Alienation Clause – Everything You Need to Know
• Loan Defeasance – Everything You Need to Know
• Cross Default – Complete Guide

Other Resources

• Adjustable Rate Mortgage
• Aircraft Financing Terms & Loan – Complete Guide
• Alienation Clause – Everything You Need to Know
• ARM Components
• ARV – After Repair Value – Everything You Need to Know
• Assignment Clause – Everything You Need to Know
• Average Daily Rate (ADR) Formula – Complete Guide
• Balloon Mortgages
• Blanket Mortgage
• Cap Rate Simplified for Commercial Real Estate (+ Calculator)
• Cash Coverage Ratio | Complete Guide + Calculator
• Cash Out Refinance on Investment Property – Complete Guide
• Closing Costs
• CMBS Loans: Guide to Commercial Mortgage-Backed Securities
• Commercial Adjustable Rate Loan Indexes
• Commercial Real Estate Appraisals – Everything You Need to Know
• Commercial Real Estate Syndication – Ultimate Success Guide
• Contingency Reserve – Everything You Need to Know
• CRE Loans – What Nobody Tells You About Commercial Lending
• Cross Default – Everything You Need to Know
• Debt Service Coverage Ratio
• Debt vs Equity Financing
• DIP Financing
• EBITDA Margin – Ultimate Guide
• Effective Gross Income (+ Calculator)
• Equity Kicker – Everything You Need to Know
• Fixed Rate Loans
• Full Service Gross Lease – Everything You Need to Know
• Gap Funding Commercial Real Estate – Pros & Cons
• Ground Lease – Everything You Need to Know (+ Calculator)
• Guide to Floor Area Ratio, Floor Space Index & Plot Ratio
• Hard Costs vs Soft Costs – Commercial Real Estate Guide
• Hard Money vs Soft Money Loans in Real Estate
• How Much to Borrow
• Hypothecation Agreements – Everything You Need to Know
• Industrial Gross Lease
• Intercreditor Agreements – Everything You Need to Know
• Interest Only Mortgage
• Lines of Business
• Loan Defeasance
• Loan Proceeds – Everything You Need To Know
• Loan to Cost Ratio
• Loss to Lease – Everything You Need to Know
• Market Links
• Master Lease Agreements
• Master Planned Communities
• Mergers & Acquisitions Seller Intake Questionnaire
• Mergers & Acquisitions Buyer Intake Questionnaire
• Mini Perm Loan – Complete Guide
• MIRR Guide | Modified Internal Rate of Return (+ Calculator)
• Modified Gross Lease – Everything You Need to Know
• Mortgage Programs
• Net Effective Rent (+ Calculator)
• Net Income and NOI
• Net Leases (Single, Double, Triple)
• Operating Expense Ratio – Ultimate Guide (+ Calculator)
• Pari Passu – Everything You Need to Know
• Partially Amortized Loan – Complete Guide
• Potential Gross Income – Everything You Need to Know
• Preferred Equity in Real Estate – Complete Investor’s Guide
• Preferred Shares – Everything You Need to Know
• Property Interest – Everything You Need to Know
• Recourse Loans – Complete Guide
• Restrictive Covenants – Everything You Need to Know
• Reverse 1031 Exchange – Everything You Need to Know

Ronny was a pleasure to work with and is extremely knowledgeable. His hard work was never ending until the job was done. They handled a complex lease and guided us through entire process, including the paperwork. Not to mention a below market lease rate and more than all the features we needed in a site. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. Thank you to Assets America for your highly professional service!

Great experience with Assets America. Fast turn around. Had a lender in place in 30 minutes looking to do the deal. Totally amazing. Highly recommend them to anyone looking for financing. Ronny is fantastic. Give them a call if the deal makes sense they can get it funded. Referring all our clients.

Assets America guided us every step of the way in finding and leasing our large industrial building with attached offices. They handled all of the complex lease negotiations and contractual paperwork. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. They were always available to answer each and every one of our questions. Overall, they provided my team with a fantastic and highly professional service!

Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. At the time of financing, it was extremely difficult to obtain bank financing for commercial real estate. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. The company is very capable, I would recommend Assets America to any company requiring commercial financing.

Assets America was incredibly helpful and professional in assisting us in purchasing our property. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. They helped and successfully guided us to beat out 9 other competing offers! They were excellent at communicating with us at all times and they were extremely responsive. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. We would most definitely utilize their services again and again for all of our real estate needs.

Assets America is a great company to work with. No hassles. Recommend them to everyone. Professional, fast response time and definitely gets the job done.

Ronny at Assets America has been invaluable to us and definitely is tops in his field. Great experience. Would refer them to all our business associates.

We were very pleased with Assets America’s expertise and prompt response to our inquiry. They were very straight forward with us and helped a great deal. We referred them to all our business associates.

I’ve worked with this company for decades. They are reputable, knowledgeable, and ethical with proven results. I highly recommend them to anyone needing commercial financing.

Ronny was incredibly adept and responsive – top-notch professional who arranged impressive term sheets.

Assets America helped us survive a very difficult time and we most definitely give them 5 stars!

Ronny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go.

My business partner and I were looking to purchase a retail shopping center in southern California.  We sought out the services of Ronny, CFO of Assets America.  Ronny found us several commercial properties which met our desired needs.  We chose the property we liked best, and Ronny went to work. He negotiated very aggressively on our behalf. We came to terms with the Seller, entered into a purchase agreement and opened escrow.  Additionally, we needed 80 percent financing on our multimillion-dollar purchase.  Assets America also handled the commercial loan for us.  They were our One-Stop-Shop. They obtained fantastic, low, fixed rate insurance money for us.  So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement.  Ronny did and performed exactly as he said he would. Ronny and his company are true professionals.  In this day and age, it’s especially rare and wonderful to work with a person who actually does what he says he will do.  We recommend them to anyone needing any type of commercial real estate transaction and we further highly recommend them for any type of commercial financing.  They were diligent and forthright on both accounts and brought our deal to a successful closing.

Questionnaire

• Practical Law

Assignment of loan

Practical law uk standard document 9-500-4767  (approx. 31 pages), get full access to this document with a free trial.

Try free and see for yourself how Practical Law resources can improve productivity, efficiency and response times.

About Practical Law

This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more.

650+ full-time experienced lawyer editors globally create and maintain timely, reliable and accurate resources across all major practice areas.

83% of customers are highly satisfied with Practical Law and would recommend to a colleague.

81% of customers agree that Practical Law saves them time.

• Lending - General
• Corporate lending

• Search Search Please fill out this field.
• Building Your Business

What Is an Anti-Assignment Clause?

Anti-Assignment Clauses Explained

• Definition and Example

How Anti-Assignment Clauses Work

• State Laws and Anti-Assignment Clauses

Extreme Media / Getty Images

An anti-assignment clause is a provision in an insurance policy that bars the policyholder from transferring their rights under the policy to another party. The clause prohibits the insured from authorizing someone else to file claims, make changes, or take other actions under the policy.

Many  small businesses  purchase insurance policies that contain an anti-assignment clause, which may affect their ability to conduct certain routine business transactions. For instance, if your property is damaged and you hire a contractor to make repairs, the clause may bar you from allowing the contractor to collect loss payments directly from your insurer. In addition, some restrictions found in anti-assignment clauses may be overridden by state laws. Below, we’ll explore further what an anti-assignment clause is and how it works.

Definition and Example of an Anti-Assignment Clause

An anti-assignment clause is language found in an insurance policy that forbids the policyholder from assigning their rights and interests under the policy to someone else without the insurer’s consent. The clause is usually found in the policy conditions section.

Alternate name : Assignment clause, Non-assignment clause

An example of an anti-assignment clause is wording contained in the standard Insurance Services Office (ISO) business owners policy (BOP) . You can find it in the Common Policy Conditions (Section III) under the heading “Transfer of Your Rights and Duties Under This Policy.” The clause states that your rights and duties under the policy may not be transferred without the insurer’s written consent. However, if you are an individual named on the policy and you die, your rights will be transferred to your legal representative.

An anti-assignment clause may not include the word “assignment” but instead refer to a transfer of rights under the policy.

Anti-assignment clauses prevent policyholders from transferring their rights under the policy to someone else without the insurer’s permission. The clauses are designed to protect insurers from unknown risks. Insurers evaluate insurance applicants carefully before they agree to provide coverage. They consider an applicant’s business experience, loss history, and other factors to gauge their susceptibility to claims. When an insurer issues a policy, the premium reflects the insurer’s assessment of the applicant’s risks. If the policyholder transfers their rights under the policy to another party, the insurer’s risk increases. This is because the insurer hasn’t had an opportunity to evaluate the new party’s risks.

The following example demonstrates how an anti-assignment clause in an insurance policy can affect a business.

Theresa is the owner of Tasty Tidbits, a pastry shop she operates out of a commercial building she owns. She has insured her business for liability and property under a business owners policy. Theresa decides to take a one-year sabbatical from her business and asks her friend Ted to manage Tasty Treats during her absence. Theresa signs a contract assigning her rights under Tasty Tidbits’ BOP to Ted.

If a loss occurs, Ted may have no right to file a claim or collect benefits under the policy on Tasty Treats’ behalf. The assignment is barred by the anti-assignment clause in the BOP.

Effect of State Laws on Anti-Assignment Clauses

Many states have enacted laws via a statute or court ruling that override anti-assignment clauses in insurance policies. These laws may invalidate all or a portion of a policy’s anti-assignment provision. While the laws vary, many bar pre-loss assignments but permit assignments made after a loss has occurred. Assignments made before any losses have occurred are prohibited because they increase the insurer’s risks. Post-loss assignments don’t increase the insurer’s risks, so they generally are permitted.

Some states prohibit any assignment of benefits made without the insurer’s consent, whether the assignment occurred before or after a loss.

Here's an example of how a state law can impact an anti-assignment clause in an insurance policy. Suppose that Theresa (in the previous scenario) has returned from her sabbatical and is again operating her business. Tasty Treats is located in a state that bars pre-loss assignments but allows assignments made after a loss has occurred.

Late one night, a fire breaks out in the pastry shop and a portion of the building is damaged. Theresa files a property damage claim under her BOP and hires Rapid Reconstruction, a construction company, to repair the building. At the contractor’s suggestion, Theresa assigns her rights to receive benefits for the claim under the BOP to Rapid Reconstruction. Because Theresa has assigned her rights after a loss has occurred, the assignment is permitted by law and should be accepted by Theresa’s insurer.

Key Takeaways

• Many policies purchased by small businesses contain an anti-assignment clause.
• An anti-assignment clause bars the policyholder from assigning their rights and interests under the policy to someone else without the insurer’s consent.
• Many states have a statute or court ruling that overrides anti-assignment clauses in insurance policies.
• State laws vary, but many prohibit pre-loss assignments yet permit assignments made after a loss has occurred.

Canopy Claims. " Business Owners Coverage Form ," Page 53.

Penn State Law Review. " If You Give a Shop a Claim: The Unsustainable Inequity of Pennsylvania’s Unbridled Post-Loss Assignments ."

Stahl, Davies, Sewell, Chavarria & Friend. " Buyers and Sellers Beware - Assignment of Hurricane Claims May Be Invalid in Texas ."

Greater transparency: No indemnity clause in NPA sale pact between banks and ARCs

M umbai: After year-long negotiations, high-street banks and stressed asset firms last week adopted a 'model agreement' for selling loans, but were unable to reach a meeting point on the tricky issue of 'indemnity' which banks typically refuse to give once sticky assets move out of their books.

Lenders, according to documents reviewed by ET, would also have the right to declare an account as 'fraud' and make asset reconstruction companies (ARCs) that acquired the stressed loan responsible for dealing with the investigative agencies looking into the offence.

Even though a model template settles several differences arising in the course of loan sales, the two issues, pertaining to indemnity and fraud, place selling banks at a comparatively advantageous position.

Lenders, under the aegis of the industry body Indian Banks' Association, on May 17 approved a final draft of the Model Assignment Agreement and Model Trust Deed for adaptation by member banks, financial institutions, finance companies and ARCs, said a note sent to all banks.

The standardised agreement between buying ARCs and selling banks is expected to bring in greater transparency and fair play, said a senior banker involved in the drafting.

ARCs had been nudging banks to offer indemnity even after selling loans to take care of situations where damaging facts, which were not known at the point of sale, surfaced later. However, large banks, unwilling to deal with such eventualities once they wash their hands of an asset, used their influence to scuttle the proposal. Now, the provision of 'indemnity' would be decided on a case-to-case basis between the buyer and the seller. As the model agreement says, "...to be retained or deleted basis mutual agreement between parties, along with the terms thereof."

Over the last few years, selling banks have refrained from giving indemnity on the loans assigned to ARC. Typically, the ARC would want the bank to provide a written commitment that there are no third-party claims on the assets being sold along with the loan or that there are no other legal claims (other than those disclosed) on the asset. "Banks, particularly the large ones, have avoided indemnity by asking ARCs to do proper due diligence before buying it," pointed out a senior person from the ARC industry. "But the fact is that indemnity is required for things not shown to us in due diligence," she added.

The ARC seeks indemnity to protect itself from any unknown claim that may arise after acquiring the loan in its books against full cash payment.

It was also decided that any sharing of liability in the wake of devolvement and invocation of guarantees or any non-fund facilities would depend on the commercial terms agreed between the buyer and seller, and would be kept outside the model agreement.

HANDLING FRAUD ACCOUNTS

On the fraud account issue, the model agreement says that if the selling bank (post the sale of debt to an ARC), receives instruction from any relevant statutory authority to classify the loan as 'fraud', then, notwithstanding the assignment having taken effect, the bank will have a right to declare the loans as fraud on a future date.

The document further adds that after reporting the account as fraud, it will be the sole responsibility of the ARC to monitor and file complaints with law enforcement agencies and proceedings related to such complaints.

If the loan is sold for full cash, it is deemed a 'true sale', and the bank should not have any control over the treatment or resolution of the account.

The agreement says that banks and ARC can mutually decide on the course of action, but banks will have the final right to decide the necessary steps for declaring the account fraudulent.

According to industry estimates, ARCs have acquired nearly ₹10 lakh crore of bad loans from banks since starting operations in 2003.

These loans are acquired against cash or a combination of cash and security receipts (SR), which are securities whose return is linked to the recovery from the underlying loans. The ARCs have issued close to ₹2.85 lakh crore of SRs, and of this, nearly ₹1.5 lakh crore of SRs are redeemed.

For more news like this visit The Economic Times .