Disagreement over Absolute Assignments of Rents Reappears

September 2012The Bankruptcy Strategist

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.