SENATE BILL REPORT

SB 5771

BYSenator Nelson

Clarifying the process for perfecting interests in the assignment of rents.

Senate Committee on Law & Justice

Senate Hearing Date(s):February 20, 1989

Majority Report:  Do pass.

      Signed by Senators Pullen, Chairman; Madsen, Nelson, Niemi, Rasmussen, Talmadge.

Senate Staff:Joyce Ansley (786-7418)

                  March 9, 1989

AS PASSED SENATE, MARCH 9, 1989

BACKGROUND:

Federal bankruptcy courts must apply state law in deciding cases involving the validity of a mortgagee's security interest.  In a recent case, a federal bankruptcy court interpreted Washington State property security laws in a way which some believe to be contrary to state legislative intent.

The Washington statute is generally considered to provide that one who holds a mortgage in real property may perfect an assigned security interest in the rents and profits of the mortgaged property simply by recording the mortgage and assignment.

The Bankruptcy Court for the Western District of Washington held in May, 1988 that an assignment of rents taken as security for a loan is an unperfected lien which is not perfected until the lender takes possession of the rents or has a receiver appointed.

It is suggested that an ambiguity in the current statute contributed to the court decision.  It is suggested that the statute be amended to clarify legislative intent that a lender obtains a perfected lien and security interest in the unpaid rents once it has recorded a mortgage or assignment of rents.

SUMMARY:

The assignment of rents and loans for security are perfected as of the time of recording and no further action by the holder of the security interest is required to perfect the security interest.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Larry Shannon (pro)