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Disagreement over Absolute Assignments of Rents Reappears
During the real estate downturn of the early 1990s, courts in the Southern and Eastern Districts of New York disagreed over the impact under New York law of what appeared to be absolute assignments of rents, and whether Chapter 11 debtors could spend property rents to support their reorganization efforts despite such assignments. During the current downturn, two Southern District judges held that debtors are prevented from spending such rents because they had executed absolute assignments. In re Loco Realty Corp., 2009 WL 2883050 (Bankr. S.D.N.Y. Jun. 25, 2009); Soho 25 Retail, LLC v. Bank of America, N.A. (In re Soho 25 Retail, LLC), 2011 WL 1333084 (Bankr. S.D.N.Y. Mar. 31, 2011). Those decisions seemed to signal a recent trend favoring lenders on this issue. But Judge Elizabeth S. Stong of the Eastern District recently reached the opposite conclusion in In re South Side House, LLC, 2012 WL 2254212 (Bankr. E.D.N.Y. Jun. 15, 2012). As the question remains unresolved, this article addresses arguments each side may wish to raise.
Background
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