Mortgage lenders in California typically take an “assignment ofrents” from the borrower when they originate loans. However,if the borrower fails to pay timely, many California lenders arequick to start trustee’s sale or foreclosure proceedings but arereluctant to make rent demands as allowed by their assignments ofrents. Why?

I think some of the reluctance is historical, because therelevant law was significantly changed in 1996. Even thoughthat seems a long time ago, the California real property marketswere so buoyant from 1996 through 2006 (but for a relatively smallhiccup in 2001 or so) that many practitioners have never reallylearned the new laws, which are much more favorable to lenders.

First, some background: in California, when a lender makesa loan secured by real property, it is entitled to foreclose on thereal property (either judicially – through a court action -- orthrough a trustee’s sale). What’s more, the lender’s rightsare limited: the lender must enforce the loan against thecollateral for the loan (other than in a few very limitedcircumstances), and does not have the ability to sue the borrowerdirectly and to ignore the real property collateral. (I’vediscussed these “one-action” and “anti-deficiency” rules in earlierblogs.)