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loan assignment consideration

The past six months have been turbulent in the fund finance world. We have seen lenders in the market deal with significant capital constraints, we have seen a small amount of lenders scale back in the fund finance lending market, deciding to deploy capital elsewhere, and we have also seen a large number of new lenders enter into the fund finance market to take advantage of rising interest rates and quality sponsors in need of liquidity. The past week has brought with it unprecedented times, and it of course remains to be seen how the aftermath of the collapse of Silicon Valley Bank and Signature Bank will play out, and specifically what exactly will happen to the fund finance loans held by those lenders. We know this has been a challenging time for our friends and colleagues at these institutions, and we join the broader fund finance community in offering our support. For further information on the impacts of the SVB/Signature FDIC takeover on fund finance transactions, please refer to the articles we published earlier this week  here  and  here , noting that this is a fluid and constantly evolving matter.

In light of the above background, we thought it would be helpful to highlight some of the techniques commonly used by market participants when transferring an existing loan, and some key considerations when doing so.

Assignment by Participant Lender

If a  participant  lender wishes to assign its loan, thereby exiting the facility, this can usually be done by way of execution of an assignment and assumption agreement and compliance with the various other conditions to assignment pursuant to the terms of the underlying loan documents.

In the assignment and assumption agreement, the assigning lender sells and assigns to the assignee lender, and the assignee lender purchases and assumes all of the assignor lender’s rights and obligations under the loan documents.

It is important to thoroughly review the conditions precedent to assignment, including any consents that may be required. Often times the consent of the borrowers is required unless an event of default has occurred and is continuing at the time of such assignment, or unless such assignment is to an existing lender or an affiliate thereof. The new lender must qualify as an eligible assignee under the terms of the loan agreement, and certain persons are usually prohibited therefrom, such as natural persons, defaulting lenders or subsidiaries of the credit parties.

If a defaulting lender is assigning its rights and obligations, typically the parties to such assignment are also required to make certain additional payments to cover all liabilities of the exiting lender.

Upon the effectiveness of the assignment, the assignee lender becomes a party to the loan agreement, and the assigning lender is released from its obligations and ceases to be a lender thereunder, but it continues to be entitled to the benefits of certain indemnification and other rights such as the payment of fees, to the extent such rights relate to the time prior to the assignment.

The administrative agent (the “agent”) is typically required to maintain a register of loans that identifies the name and address of each lender and the amounts of the lenders’ commitments and loan balances, including copies of all assignment and assumption agreements. After assignment, the administrative agent should update this register with the details of the new lender and related loan.

It’s also worth flagging that, in some instances, the new lender may require certain updates to the loan agreement by way of amendment, and/or reliance letters, which provide consent to the new lender to rely on the existing opinions. These are all items that get considered and negotiated when a new lender joins a facility.

Agent Resignation and Appointment; Lender Assignment

If the agent and the assignor lender are one and the same, the parties may wish to effect the loan assignment by removing the existing agent, replacing it with a successor agent, and assigning the loan. The existing lender would also assign its loan to the new lender in the same way that we have detailed above. The steps that are generally followed under this method are set out below, but it is important to note that each deal is different, and it is necessary to follow the terms and satisfy the conditions of the existing loan documents.

(i)  Agent Resignation and Appointment Agreement

Typically the existing agent has a right to resign pursuant to the loan documents, and can do so by way of notice to the parties to such loan agreement, upon receipt of which the majority of lenders will have a right to appoint a successor agent. Similar to a loan assignment, the borrowers usually have consent rights to the successor agent and will therefore need to approve the successor agent, provided that no event of default has occurred and is continuing at the time of such resignation. The parties can document the resignation and appointment by entering into an agent resignation and appointment agreement.

In the LSTA’s Model Credit Agreement Provisions, the successor agent must be a bank with an office in a named city, although sometimes this has been negotiated out of the document if parties didn’t wish to be limited in this respect. The parties will therefore need to ensure that the successor agent meets the criteria set out in the loan agreement.

If the person serving as agent is a defaulting lender, the loan documents typically permit (subject to applicable law) a majority of the lenders (other than the defaulting lender), upon consultation with the borrowers, to remove such agent and appoint a successor. It’s extremely important to obtain legal advice if the parties wish to use this mechanism, since this provision is a little more complex and would be subject to applicable law.  

Upon execution of an agent resignation and appointment agreement, the existing agent will be discharged from its duties and obligations as agent under the loan documents, and the successor agent assumes such duties and obligations. The existing agent also assigns and transfers to the successor agent all of its rights as agent granted or assigned to it under the collateral documents (including security agreements and collateral account pledges) and the successor agent accepts all such rights for its benefit and for the benefit of the other secured parties. The existing agent will typically still hold on to certain indemnification and other rights that relate to the period prior to such resignation or removal.

(ii) Assignment and Assumption Agreement

As detailed in “Assignment by Participant Lender“ above, the parties would enter into an assignment and assumption agreement, and follow the conditions precedent to assignment. See “Assignment by Participant Lender“ for further detail.

(iii) Omnibus Amendment to Loan Documents

The existing credit parties, resigning agent and successor agent would enter into an omnibus amendment to the loan documents, whereby the parties replace all references to the existing agent with the successor agent. It is important to thoroughly review each loan document when preparing the omnibus amendment to ensure compliance with the amendment provisions therein. The notice information will also need to be updated, and the successor agent may have other certain updates that are required to be included in the omnibus amendment.

(iv)  Account Control Agreements

The parties will likely need to amend and restate the existing account control agreements, or enter into new ones, as required by the depositary bank in question and the terms of the applicable control agreements. Sometimes depositary banks permit the account control agreement to be amended and restated, but sometimes they require new ones to be entered into.

(v)  Lien Searches and UCC Filings

The parties will need to run new lien searches, and ensure those are in order, and similarly file UCC-3 amendment filings. The amendment filings will include the successor agent as the secured party.

(vi)  Opinions

It is important to obtain new opinions for the successor agent, since the existing ones will not be addressed thereto and to ensure enforceability and security interest coverage given the amended documents and security filings.

(vii) Certificates and Resolutions

It is also important to obtain new corporate certificates with respect to the credit parties in the transaction and resolutions authorizing the entry into of the transactions contemplated by the omnibus amendment.

(viii)  Investor Notices

Depending on the jurisdiction of the credit parties, new investor notices may have to be sent, notifying the relevant investors that the agent and lender have assigned their interests to the successor agent and lender. It is important to consult with local counsel in order to ascertain whether or not such investor notices may be required. If the deal is an SMA and an investor letter is likely already in place, investor notices would typically be sent regardless of the jurisdiction, in order to notify the investor of such assignment and transfer.

(ix)  Payoff Letter

Sometimes the departing lender will require a payoff letter, confirming that they are exiting the deal upon receipt of the payoff amount, which amount usually represents all obligations due and owing to it pursuant to the loan documents. This is sometimes baked into the omnibus amendment, rather than a stand-alone document.

The above approach can be enticing for new lenders that are looking to also take on the role of agent, which can be lucrative and also provide more insight and control. This technique is also attractive to new lenders when the existing loan documents generally look acceptable and the parties wish to save on fees and expenses that might otherwise be incurred by terminating the existing facility and entering into and negotiating a new one entirely. This method might also be a more attractive option if there are other lenders in the deal and the new lender/agent does not wish to disturb those existing lenders to the extent possible. As mentioned above, every deal is different and has different nuances that will need to be considered and addressed.

Termination of Existing Facility and Entry into of New Facility

This is perhaps the most common way we see loans being transferred to or refinanced by new lenders. Typically, this method is used when a loan is already set to mature, but the existing lender does not wish to renew. The borrower will probably wish to have the new loan commence on or prior to the maturity of the existing loan.

With this approach, the existing loan is terminated and the existing lender is paid off pursuant to a payoff and termination letter; this closes substantially concurrently with the entry into of a new facility. All of the typical requirements associated with a new deal are entered into, which we won’t get into for the purposes of this article; however, it is important to note that the new lender will also need to make sure that UCC-3 termination filings are filed immediately prior to the UCC-1 filings being filed, in order to ensure its priority with respect to the collateral. The existing account control agreements will also need to be terminated and new ones entered into.

The parties to the “new loan” may wish to use the existing loan agreement as precedent for the transaction, since the material issues will likely already have been addressed; however, this depends on the appetite of the new lender, depending on how those existing loan documents were drafted and depending on how old they might be; in some instances, it may make more sense to start with a new lender’s form documents.

Other considerations, such as outstanding letters of credit, will need to be addressed too, depending on how the existing facility was set up. For example, the new lender may be asked to provide a loan to the borrower in order to cash collateralize its existing letter(s) of credit.

The above methods, while used in the fund finance market, are high-level overviews only. It is important to seek guidance from counsel and address the particular nuances of the deal at hand.

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Understanding the Assignment of Mortgages: What You Need To Know

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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.

Attorney Todd Carney

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.

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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

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Assigning debts and other contractual claims - not as easy as first thought

Updates to UK Money laundering rules - key changes

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

  • In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
  • In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
  • Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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Refinancing the Borrower through an Assignment and Assumption: When, Why, and How

Blank Rome LLP

In Part 1 of this two-part series, Jason I. Miller introduces the assignment and assumption structure and its benefits, discusses the factors a lender can use to determine whether it is ultimately a beneficial strategy to pursue under the circumstances, and begins to focus on key provisions typically found in an assignment and assumption agreement.

Today’s two-edged lending environment of abundant liquidity and low credit standards has created soft pricing for secured lenders. This, coupled with the simultaneous pressure to close deals as quickly and inexpensively as possible, is compelling lenders to rethink their lending strategies. More and more often lately, lenders offering refinancing have been using a strategy of taking out the existing lender through an assignment of the loan and the underlying loan documents, documented by an assignment and assumption agreement. This strategy can, depending on several factors, be a quicker and more efficient path to closing a loan.

This article outlines key points that a lender should consider when assessing whether this strategy is appropriate under the circumstances. Specifically, it focuses on core provisions typically found in assignment and assumption agreements and how the strategy compares with a typical payoff scenario.

Benefits of Taking by Assignment

The strategy of taking by assignment usually arises when one or both parties to the transaction are either looking to:

  • Close quickly;
  • Minimize or altogether avoid the hassle, expense, and potential delays involved with obtaining new consents, waivers, and other agreements from third parties; or
  • Trump intervening secured lenders by stepping into the shoes of the existing lender from a lien priority standpoint.

From a simplistic standpoint, if you could get comfortable with all the existing due diligence and legal documents under the existing lender’s credit facility and then all you had to do to close was execute and deliver an assignment agreement, you could close within a matter of days. In reality, closing any transaction is almost never this simple; nonetheless, in its purest, most ideal form, it is clear how this strategy is attractive from a timing perspective. The more common scenario is that taking by assignment usually takes longer than simply signing and closing, yet is still less time-consuming than a straight payoff with the new lender preparing and negotiating a full suite of new loan documents.

It is important to note that most lenders will need to finish their customary diligence, KYC compliance, and background checks prior to taking an assignment, and such items as these can only be expedited so much. Furthermore, most lenders and their counsel will also require a review of the existing loan documentation. Any documents that may contain errors or omissions or may require updating due to the passage of time (e.g., disclosure schedules) may need to be amended or amended and restated. Preparing these amendments in advance of closing takes time and often starts to eat into the anticipated time savings.

One loan document that the new lender will almost certainly want to amend and restate is the loan agreement. As any lender knows, a loan agreement, especially the longer and more detailed varieties, can be very personal to an institution. Banks, for example, may require internal approval to forgo their usual formulation of anti-money laundering (AML) and Patriot Act representations, warranties, and covenants. Asset-based lenders will likely have eligibility criteria or reporting requirements specific to the institution that must be contained in the document. These are only a few of the reasons why a lender might find the existing loan agreement insufficient for its purposes going forward. In sum, most new lenders taking by assignment will prepare an amended and restated loan agreement, in the form of their institution’s form loan agreement, in advance of closing so that it can be in place from the closing date onwards. The amended and restated loan agreement is likely the most substantial agreement to be drafted and any complications or delays with its preparation or negotiation have the potential to reduce any anticipated time savings.

Often, parties to a proposed refinancing look back at the closing binder from the original closing and see an overwhelming number of third-party agreements, including landlord/warehouse/bailee waivers, deposit account control agreements, and intercreditor and subordination agreements. In this situation, assuming all of these agreements are fully assignable by their terms, the parties may decide that the most effective avenue to closing the deal is an assignment and assumption.

A substantial amount of upfront diligence is necessary before a new lender can determine whether the strategy, under the circumstances, makes sense. The new lender and its counsel will need to work with the existing lender and its counsel to quickly obtain copies of existing loan documents. The new lender, who is unfamiliar with the legal file, will need to understand the full scope of the documentation, both pre-and post-closing. It is important to keep in mind during such a review that each lender’s risk tolerance is different. For instance, the existing lender may have purposely not sought to obtain certain third-party agreements that the new lender routinely requires. The new lender should not assume that the legal file is complete from its own perspective; instead, it will need to determine if and when it will require that any "missing" agreement or filing be obtained. If one or more of these agreements are so important that they must be delivered before closing, the likelihood of obtaining that agreement is something to consider in the overall decision as to whether taking by assignment is the right approach for the new lender.

Regarding the existing file, each document should be reviewed to:

  • Confirm whether it is fully assignable or requires the prior written consent of the third party;
  • Ascertain whether the third party is entitled to notice of the assignment; and
  • Ensure it contains the same substantive legal benefits and protections the new lender would typically obtain for itself if starting from new, or at a minimum determine that the document is something it can "live with."

The new lender will also want to confirm that it is satisfied that the existing lender took all the necessary steps to properly perfect its lien on the collateral.

Agreements requiring advanced notice or third-party consent will have the potential to be problematic. Similarly, agreements that are substantively insufficient in their current form would need to be amended, either before or after the assignment. In such a circumstance, obtaining the third party ’s signature may be problematic. If, however, the new lender can smoothly advance past these considerations, it should be relatively easy to proceed. Any third party not entitled to notice or consent need not be dealt with. Still, some new lenders may want to send a simple notice informing the third party of the assignment and of the new lender’s contact information. More cautious new lenders may add a closing condition that the third party countersign the notice to acknowledge the assignment and agree that it remains bound by the terms of the existing agreement. A common practical consideration, relating to deposit account control agreements covering a borrower’s collection accounts (into which it receives proceeds of collateral and subjects them to an automatic sweep), is that the new lender will need to notify the depositary bank of their wire instructions for the sweep.

Lien Priority

The new lender will want to run updated UCC lien, tax, litigation, and judgment searches. To save money, they may check with the existing lender to obtain copies of any bring-down searches that may have been run at intervals since the closing date. Some-times, particularly with distressed borrowers, updated lien search reveals intervening liens that are currently junior to those of the existing lender, but would be senior to those of the new lender if the new lender refinanced the borrower through a traditional payoff. In this scenario, the new lender may opt to use the strategy of taking by assignment to leapfrog the intervening lienholders. If drafted properly, the assignment and assumption agreement (discussed below), together with any necessary UCC assignments, delivery of possessory collateral, and other notices of assignment will be sufficient for the new lender to essentially step into the shoes of the existing lender and acquire its prior perfected lien status.

Parties to the Assignment and Assumption

  • Existing lenders, as assignors ("Assignor")
  • Existing agent ("Existing Agent")
  • Existing letter of credit issuers ("LC Issuers"), if applicable
  • Existing swingline lenders ("Swingline Lenders"), if applicable
  • New lenders, as assignees ("Assignees")
  • New agent ("New Agent")
  • New letter of credit issuers, if applicable
  • New swingline lenders, if applicable
  • Borrower ("Borrowers")
  • Guarantor ("Guarantors") and other loan parties.

Note that counsel should thoroughly review the file for any loan parties who may have joined the credit facility in any capacity after the original closing date to verify whether they are a party to the assignment and assumption.

Assignments, Resignations and Appointments

  • For an agreed purchase price (discussed below):
  • All of each Assignor’s rights and obligations in its capacity as Lender under the credit agreement and the other loan documents in the amount and equal to the percentage interest identified later in the Agreement of all the outstanding rights and obligations under the respective facilities.
  • To the extent there are multiple tranches being assigned with multiple lenders on both sides of the transaction, it may be helpful to attach a schedule with a chart setting forth the various tranches, together with the various assignors and assignees thereof.
  • Each assignment is without recourse to Assignors and, except as expressly provided in the Assignment and Assumption, without representation or warranty by Assignors.
  • For clarity, the parties may wish to include a schedule listing all of the main loan documents being assigned. Be aware that, if this approach is pursued, a deep dive of the file may be necessary, especially if there have been multiple amendments and/or waivers, consents and post-closing documents executed and delivered since the original closing date.
  • To the extent applicable, LC Issuers and Swingline Lenders assigns their respective interests in such capacity to the new LC Issuers and Swingline Lenders.
  • The Existing Agent shall be discharged from all of its duties and obligations under the credit agreement and the other loan documents in its capacity(ies) as administrative agent and/or as collateral agent.
  • Borrowers and Assignors accept such resignations and waive any applicable notice requirements contained in the loan documents.
  • Assignees appoints a new administrative/collateral agent as the successor agent. Assignees and Borrowers accept and consent to the appointment.
  • There should be a statement that, from and after the effective date of the Assignment and Assumption, the fees payable by the Borrowers to the New Agent under the credit agreement, any fee letter, and any other loan documents shall be the same as those payable to the Existing Agent in such capacities.

This ends Part 1 of this series. Part 2 (scheduled for October 2017 publication) will delineate additional specific items that should be in the assignment and assumption agreement.

“Refinancing the Borrower through an Assignment and Assumption: When, Why, and How,” by Jason I. Miller was published in the May 2017 edition of The Secured Lender . Reprinted with permission. To view the article online, please click here .

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Are loans normally assigned or novated? Does it matter?

Both assignments and novations of loan contracts are common. As they have different effects, limitations and risks, whichever mechanism is suitable depends on the purpose and requirements of the transaction. The fundamental difference is that assignment allows the transfer of rights (but not obligations) from one party to another without the consent of the borrower, whereas novation is the extinction and replacement of rights and obligations under a contract with a new agreement and with different parties. It does therefore require the agreement of the borrower.

A detailed discussion of assignment is beyond the scope of this note. However, for the purposes of contrasting assignment and novation, the following are the key points.

Types of assignment

There are two types of assignment: (i) legal assignment under s. 136 of the Law of Property Act 1925 ( LPA ), which imposes formal requirements; and (ii) equitable assignment which is not subject to these requirements.

What rights may be assigned?

The general rule is that a presently owned right (eg

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Albert Sampson

Albert is a barrister at 4 Stone Buildings practising mainly in the fields of commercial law, banking and financial services law, company and insolvency law and civil fraud. Albert's work often has an international or cross-border element, and his experience includes advising in relation to matters arising in offshore financial centres. Albert's financial services experience includes disputes over: complex structured financial products; capital markets transactions; FX and CFD trading; and the mis-selling of financial products.

Albert was recently seconded to the FCA where he advised on a range of regulated activities, including electronic peer-to-peer lending platforms and collective investment schemes. He is currently a consultant barrister with the National Crime Agency, where he deals with civil asset recovery matters under the Proceeds of Crime Act 2002.

Key definition:

Loan definition, what does loan mean.

An advance of funds from one party (the creditor ) to another party (the debtor ) for a period of time. The funds can be advanced for an agreed period or be repayable upon demand. Interest is usually paid on the advance which can be secured or unsecured

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Mortgage Assignment Laws and Definition

(This may not be the same place you live)

  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

  • The current assignor name.
  • The name of the assignee.
  • The current borrower or borrowers’ names. 
  • A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
  • A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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BankLabs

Loan Participation Vs Assignment

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Sub-participation

Sub-participation is a form of loan participation in which a lender shares its risk with a second party. This type of loan participation does not change the documentation of the loan. This type of loan participation can also include future amounts for loans that have not yet been fully disbursed, such as a revolving credit facility.

The legality of sub-participation is dependent on the conditions of the loan agreement. In general, a loan participant cannot enforce the loan or proceed against the collateral on their own. Furthermore, the borrower may not even be aware that the loan participant is involved. However, the seller of the participation retains the right to enforce or compromise the loan, as well as to amend it without the consent of the participant.

As for drafting sub-participation agreements, there are many ways to do so. But it is important to include at least the following provisions: The term of the agreement, the rate of interest, and the repurchase provisions. These provisions should be included in the sub-participation or assignment agreement.

Assignment and sub-participation are standard terms in inter-bank transactions. We will examine the purposes of the loan participation and assignment agreements, as well as the terms of the transaction. While they are essentially interchangeable, they are fundamentally different.

Loan participation and assignment are both ways to transfer ownership of a loan. Assigning a loan to a third party or sub-assigning it to yourself is a common way to transfer the loan.

The terms “loan participation” and “assignment” are often used in the banking industry. Both terms refer to the transfer of a loan’s rights and payments between two financial institutions. We’ll look at what each term means and how they differ from each other.

Loan participation has long been a common form of loan transfer. Its advantages over other loan transfer methods include the ability to diversify a portfolio and limit risk. It also eliminates the need for loan servicing. However, this option can be problematic when it differs from underlying loans. For this reason, it’s important to structure loan participation carefully.

Whether a loan is a participation or an assignment depends on a variety of factors. The percentage of loan ownership, relationship with the other financial institution, and confidence in the other party are all important considerations. However, the basic difference between participation and assignment is that the former involves the original lender continuing to manage the loan while the latter takes on the responsibility of doing so.

As a rule, loan participation is a good option if the original lender does not want to keep the title of the loan. It allows the borrower to avoid the costs associated with the loan and is more attractive for borrowers. In addition, loan participation arrangements can be more flexible than outright assignments. However, it’s important to make sure that the arrangement you enter into is formal. This will prevent any confusion or conflict down the road.

Syndication

Understanding the differences between loan participation and syndication is important for lenders. Understanding these two options can help them find the best solutions for their lending needs. Syndication is a common type of lending program where lenders pool their loans together to reduce the risks of defaults. Loan participation programs can be more complex and require due diligence to be effective.

Syndicated lending allows lenders to access the expertise and business relationships of their fellow lenders while maximizing their exposure to deal flow. However, lenders who join a syndicated lending arrangement often give up some of their independence and flexibility to take unilateral action. In addition, these arrangements often involve the involvement of legal counsel, which can also be important.

A loan participation arrangement is a group of lenders coming together to fund a large loan. A lead bank underwrites the loan and sells portions of it to other financial institutions. Loan syndication, on the other hand, is an arrangement whereby multiple financial institutions pool their money together and make one large loan. In this type of arrangement, the original lender transfers the rights and obligations to the purchasing financial institution. The risk is then shared among the participating lenders, allowing them to share in the interest and the risks of the loan’s default.

A syndication contract can be structured in as many tranches as necessary to meet the borrowing needs of a customer. The underlying contract will contain a commitment contract that specifies the ratio of participation among the participants. Each tranche will have a borrower, which will be a common participant or may be different. The contract will require that each participant fulfill their commitments before the scheduled due dates.

Loan participation and assignment are standard transactions between banks. They are similar in some respects but have different purposes. 

There are many types of loan participation agreements. Some involve a full assignment, while others are a sub-participation. If you are involved in loan participation or assignment, you need to understand which type of agreement applies to your situation. There are several types of loan participation agreements, including sub-participation agreements, undisclosed agencies, and assignments.

Sub-participation agreements are typically used to assign part of the loan amount to a new lender, and the loan documentation remains unchanged. In addition, these types of agreements include future amounts, which may be provided as part of a revolving credit facility or a portion of a loan that hasn’t been fully disbursed.

Loan participation is a popular option for lenders to limit their exposure to borrowers. Lenders may sell a portion of the loan to an investor or sell a portion of their interest to another party. While the transfer of a loan portion does not always require the consent of the transferor, lenders must consider participating interest guidelines and the applicable rules.

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Assignment, novation or sub-participation of loans             

Transfers of loan portfolios between lending institutions have always been commonplace in the financial market.  A number of factors may come into play – some lenders may wish to lower their risks and proportion of bad debts in their balance sheets; some may undergo restructuring or divest their investment portfolios elsewhere, to name a few.  The real estate market in particular has been affected by the announcement of the “three red lines” policy by the People’s Bank of China in 2020 which led to a surge of transfers, or attempted transfers, of non-performing loans.  Other contributing factors include the continuous effects of the Sino-US trade war and the Covid-19 pandemic.

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Transferability of Loans

The legal analysis regarding the transferability of loans can be complex.  The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld.  Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations.  Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples.  It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans.  This may be complicated further if there are multiple projects, facility lines or debtors.  It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.

Methods of Transfer

The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.

A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan.  The assignor is still required to perform any obligations under the loan documentation.  Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor.  However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.

Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee.  The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations.  This method of transfer does require the prior consent of the relevant debtor.

Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo.  There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders.  From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor.  This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable.  In any case, there would be no change to the balance sheet treatment of the existing lender.

Offshore Security Arrangements

The transfer of a loan in a cross-border transaction often involves an offshore security package.  A potential purchaser will need to conduct due diligence on the risks relating to such security.  From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved.  Apart from transferability generally, the documents would reveal whether any consent is required.  A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.

A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets.  For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law.  The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process.  Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft.  Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.

Due Diligence and Beyond

Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation.  Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.

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Assignment: Definition in Finance, How It Works, and Examples

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

loan assignment consideration

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loan assignment consideration

What Is an Assignment?

Assignment most often refers to one of two definitions in the financial world:

  • The transfer of an individual's rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
  • In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.

Key Takeaways

  • Assignment is a transfer of rights or property from one party to another.
  • Options assignments occur when option buyers exercise their rights to a position in a security.
  • Other examples of assignments can be found in wages, mortgages, and leases.

Uses For Assignments

Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, or other asset of value. to another entity through a written agreement.

Assignment rights happen every day in many different situations. A payee, like a utility or a merchant, assigns the right to collect payment from a written check to a bank. A merchant can assign the funds from a line of credit to a manufacturing third party that makes a product that the merchant will eventually sell. A trademark owner can transfer, sell, or give another person interest in the trademark or logo. A homeowner who sells their house assigns the deed to the new buyer.

To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of the object.

A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker's paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.

Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.

A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy . Any rental income would then be paid directly to the lender.

Options Assignment

Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price . The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.

Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option ) or buy (if a put option ) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away . For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.

Suppose a trader owns 100 call options on company ABC's stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.

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What Are Assignment and Novation Clauses in a Loan Agreement?

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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.

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  • Practical Law

Assignment of loan

Practical law uk standard document 9-500-4767  (approx. 31 pages).

  • Lending - General
  • Corporate lending

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 .

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I have been practicing law for more than 7 years in Maine and have owned my law practice, Dirigo Law LLC, since 2020. My practice focuses mostly on Real Estate / Corporate transactions, Wills, Trusts, and Probate matters.

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My name is Melissa “Mel” Green and I provide legal counsel to entrepreneurs, start-ups, and small businesses that is clear, concise, and focused on the practical impact of decisions. As trusted legal counsel, I proactively identify risks, and develop effective, practical solutions that protect my clients businesses, create positive outcomes, and help mitigate legal exposure. My areas of expertise include business formation, contract law/commercial transactions, healthcare law, and intellectual property. I also provide services as an outside general counsel or “fractional general counsel”. Prior to starting my own law firm, I spent the majority of my career in-house at large and small corporations, both for profit and not-for-profit, working with senior and executive management, in addition to other stakeholders at a variety of management levels. to proactively identify and address risks, mitigate legal exposure, streamline processes, lead persuasive negotiations that are integral to ensuring positive outcomes for the organization, and deliver hands-on, spectacular client service. There came a time when I realized that individuals and smaller entities were not receiving the same level of legal support and guidance as mid-size to large companies and as a result, individuals and small businesses were not growing and sustaining on the same level. I wanted to use my expertise to provide those that were underserved by the legal market with competent counsel at an affordable price. With the increasing number of new businesses, I knew that I could make a difference to those that needed legal guidance but were putting it off in fear of “Big Law” prices. I love to “partner” with my clients, get a deep understanding of their business, develop lasting professional relationships and watch them prosper. I want to find a way to help my clients maximize the reach, value and impact of their business. Services that I have provided over the course of my career: (i) reviewing, drafting and negotiating commercial agreements (leases, MSAs and SOWs, consulting services agreements, confidentiality agreements, SaaS agreements, coaching agreements, independent contractor agreements, coaching agreements, photographer agreements, waivers and releases, licensing agreements, etc.), (ii) business formation (operating agreements, written consents, bylaws, etc.), (iii) preparing policies and procedures for businesses in highly regulated industries, (iv) conducting federal trademark searches and filing trademark applications/preparing trademark opinion letters after conducting appropriate legal research, and (v) general business counsel.

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My Legal career hasfocused on representing businesses (corporations and limited liability companies) as general outside counsel. In this capacity, I have drafted a broad range of legal documents as well as analyzed proposed agreements drafted by the other party's attorney to the agreement for the pupose of determining the risks to which my client would be exposed. I maintained the client's minute book if no one in-house was available for that task. Additionally, if rquested, I served as a general advisor to the client's executive offers and to its Board of Directors.

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Is a 1% drop in mortgage rates worth refinancing? Experts weigh in

By Jake Safane

Edited By Matt Richardson

February 13, 2024 / 9:51 AM EST / CBS News

gettyimages-1700212984.jpg

The most recent inflation data shows that in January prices rose 3.1% year over year. That's a significant improvement from when inflation spiked to over 9% in 2022 , though it's still above the Federal Reserve's 2% target.

Amidst this backdrop, many real estate experts predict that mortgage rates will drop somewhat this year from their current levels in the mid-6s for 30-year fixed-rate mortgages, but perhaps not by much. 

If rates fall by 1%, would that be enough movement to make it worthwhile for current homeowners to refinance their mortgages ? Or would rates need to fall further? That's the question we proposed to some experts.

Considering a mortgage refinance? See what rate you could qualify for here now .

Is a 1% drop in mortgage rates worth refinancing?

For starters, a 1% drop in mortgage refinancing rates doesn't mean that you could lower your existing interest rate by 1%. If you locked in a mortgage during the pandemic at around 3%, then refinancing to, say, a 5.5% mortgage if rates drop 1% from current levels could mean your mortgage gets more expensive.

However, a mortgage refi could still be worth it, such as if you do a cash-out refinance that allows you to tackle other debt.

"Some of these homeowners may be looking to consolidate their high credit card debt, and many of them likely have a significant amount of equity in their homes. Refinancing may help them save a lot of money per month," says Christy Bunce, president of New American Funding.

Refinancing could also help you pull cash out of your home's equity for things like renovations, adds Bunce.

And if you're in a situation where you can lower your mortgage rate by 1%, such as if you bought your home in 2023, then a mortgage refinance loan could be even more worthwhile. However, you need to do the math by looking at the interest rate, mortgage refinancing costs  and the amount of time you plan to keep your home.

"Let's consider a scenario where a 1% drop in rate saves you $200 in monthly payment, but to get that rate, you need to pay $8,000 in closing costs. That means it would take you 40 months of monthly savings just to recover the upfront cost," says Shashank Shekhar founder and CEO at InstaMortgage.

But if you plan to stay in your home for more than that amount of time, refinancing could be worthwhile. And you might be able to shrink that timeline by finding a mortgage refi with lower closing costs.

"Sometimes, even a very small drop in rate with little-to-no closing cost can be beneficial," says Shekhar.

Explore today's mortgage refinance rates here to see if makes sense for you .

Other considerations to know

If you don't have other debt to consolidate and you're not looking to tap into your home's equity, then a 1% drop in mortgage rates probably isn't worth it if doing so raises your mortgage interest rate. But if you can save money, it may be valuable.

"It will come down to how long the homeowner plans on staying in the house," says Neil Christiansen, home loan specialist and Certified Mortgage Advisor at Churchill Mortgage.

"For example, if the recoup time, after dropping their rate 1%, took 4 years to recoup but they knew their plan was to be in the house for at least 10 years, it would make sense to consider paying the fee. The opposite will hold true if their stay is anything less than the calculated recoup time. The cost would outweigh the benefit," he adds.

Why homeowners may want to refinance this year

If mortgage rates drop this year as predicted, then that could make refinancing more attractive to homeowners in 2024 , especially those who were homebuyers in the latter half of 2023.

"From August 2023 through December 2023, rates were over 7%, according to Freddie Mac. At their peak in October, rates were at 23-year highs at 7.8%. If rates were to drop by 1%, we could see a significant amount of refinancing," says Shmuel Shayowitz, president and chief lending officer at Approved Funding.

Even if rates fall by a more modest amount, refinancing could be worthwhile, especially if you can find one with minimal closing costs.

"When determining if one should refinance, I believe it needs to be discussed anytime rates drop at least .5% when compared to their existing rate," says Christiansen. "If a homeowner can reduce their mortgage rate for minimal fees or in some cases zero costs, refinancing should be a high priority."

Even a slight reduction from the existing rate to the current rate could result in hundreds of dollars in savings each month.

So, for example, being able to save over $250 per month with a 1% drop in mortgage rates could make refinancing very attractive. But if closing costs eat into that too much and you don't plan on keeping your mortgage for long enough to overcome that, then you might be better off waiting.

Not sure if mortgage refinancing is worth it for you? Crunch the numbers and find out here now .

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IMAGES

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COMMENTS

  1. Debt Assignment: How They Work, Considerations and Benefits

    Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector). The company assigning the debt may do so to...

  2. Assignment Of Loan: Definition & Sample

    A. Assignor is the legal and equitable owner and holder of that certain Promissory Note in the principal amount of $13,800,000.00 dated June 1, 2007 (the " Note "), which Note is secured by, among other things, that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated June 1, 2007, executed by Brookside I...

  3. Loan Assignments: Common Techniques and Key Considerations

    (i) Agent Resignation and Appointment Agreement Typically the existing agent has a right to resign pursuant to the loan documents, and can do so by way of notice to the parties to such loan...

  4. Understanding the Assignment of Mortgages: What You Need To Know

    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.

  5. Assignment of Accounts Receivable: Meaning, Considerations

    Assignment of accounts receivable is a lending agreement, often long term , between a borrowing company and a lending institution whereby the borrower assigns specific customer accounts that owe ...

  6. Assigning debts and other contractual claims

    The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor's name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the ...

  7. Refinancing the Borrower through an Assignment and Assumption: When

    In Part 1 of this two-part series, Jason I. Miller introduces the assignment and assumption structure and its benefits, discusses the factors a lender can use to determine whether it is ultimately ...

  8. Are loans normally assigned or novated?

    Both assignments and novations of loan contracts are common. As they have different effects, limitations and risks, whichever mechanism is suitable depends on the purpose and requirements of the transaction. The fundamental difference is that assignment allows the transfer of rights (but not obligations) from one party to another without the ...

  9. Assignment of Mortgage Laws and Definition

    At No Cost! What is a Mortgage Assignment? A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

  10. Foreclosure Defenses: Is Your Mortgage Properly Assigned?

    It endorses the promissory note (signs it over) to the new loan owner. The promissory note owner is the only party with the legal right (called "standing") to collect payment on the debt. Assignment. The seller also prepares an assignment of mortgage to the new entity and, usually, records the assignment in the county records.

  11. Loan Assignments: Common Techniques and Key Considerations

    (i) Agent Resignation and Appointment Agreement Typically the existing agent has a right to resign pursuant to the loan documents, and can do so by way of notice to the parties to such loan agreement, upon receipt of which the majority of lenders will have a right to appoint a successor agent.

  12. Assignment and novation

    Assignment Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred. Assignment in construction contracts As noted above only the benefits of a contract can be assigned - not the burden. In the context of a building contract:

  13. The Loan Settlement Waterfall And Why "Legal Transfer/Assignment Only

    The secondary loan market aspires to that goal; however, ensuring absolute certainty of settlement has proven elusive due to several reasons, including the complexity of the underlying loan product. ... (i.e., novation or assignment) under the LMA, or assignment under the LSTA, in each case using the form of transfer document prescribed in the ...

  14. Mortgage Loan Assignment: The What, Why, and How Of It

    The coalition of banks, recognizing the challenges of physical loan paperwork and the solutions to it provided by digitization, created the Mortgage Electronic Registration System (MERS), Inc. It is used to keep track of the link between borrowers and lenders. With MERS, mortgage assignment becomes a breeze.

  15. Loan Participation Vs Assignment

    Assigning a loan to a third party or sub-assigning it to yourself is a common way to transfer the loan. Assignment The terms "loan participation" and "assignment" are often used in the banking industry. Both terms refer to the transfer of a loan's rights and payments between two financial institutions.

  16. Assignment, Novation Or Sub-participation Of Loans

    A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and ...

  17. Assignment: Definition in Finance, How It Works, and Examples

    Assignment: An assignment is the transfer of an individual's rights or property to another person or business. For example, when an option contract is assigned, an option writer has an obligation ...

  18. Assignment and Novation in a Loan Agreement

    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 ...

  19. Assignment of loan

    Assignment of loan by Practical Law Finance A standard form deed of assignment under which a lender (the assignor) assigns its rights relating to a facility agreement (also known as a loan agreement) to a new lender (the assignee).

  20. Assignment (law)

    Mortgages and loans are relatively straightforward and amenable to assignment. ... Assignments made for consideration are irrevocable, meaning that the assignor permanently gives up the legal right to take back the assignment once it has been made. Donative assignments, on the other hand, are generally revocable, either by the assignor giving ...

  21. Assignment Of Leases And Rents: Definition & Sample

    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. ... In consideration of the Loan from Lender to Borrower, which is of direct and ...

  22. Consideration for the Loan Assignment Definition

    Consideration for the Loan Assignment means the consideration to be paid by the Purchaser to the Vendors in consideration for the assignment of the Transferable Shareholders Loan that is equal to the outstanding loan amount ( principal and interest) of the Transferable Shareholders Loan at Closing. Sample 1 Based on 1 documents

  23. PDF CONNECTED TRANSACTION ASSIGNMENT OF LOAN

    fully paid in cash with an amount of RMB48,047,500 as the consideration of the Loan Assignment pursuant to the agreement. VI. IMPLICATIONS UNDER THE HONG KONG LISTING RULES As one or more of the applicable percentage ratios in respect of the Loan Assignment exceeds 0.1% but is less than 5%, the Loan Assignment is subject to

  24. Is a 1% drop in mortgage rates worth refinancing? Experts weigh in

    Other considerations to know If you don't have other debt to consolidate and you're not looking to tap into your home's equity, then a 1% drop in mortgage rates probably isn't worth it if doing so ...