Teachers Ins. and Annuity Ass'n of America v. Oklahoma Tower Associates Ltd. Partnership

Teachers Ins. and Annuity Ass'n of America v. Oklahoma Tower Associates Ltd. Partnership
1990 OK 97
798 P.2d 618
61 OBJ 2533
Case Number: 75324
Decided: 10/02/1990
Supreme Court of Oklahoma

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, A NEW YORK CORPORATION, APPELLEE,
v.
OKLAHOMA TOWER ASSOCIATES LIMITED PARTNERSHIP, A CONNECTICUT LIMITED PARTNERSHIP; AND TOWER ASSOCIATES WRAP CORP., A DELAWARE CORPORATION, APPELLANTS.

Appeal from the District Court of Oklahoma County; William H. Henderson, Judge.

¶0 Trial court ordered rents collected prior to appointment of receiver be paid to mortgage. Okl.Stat. tit. 46, § 4 (Supp. 1986), entitles mortgage, under appropriate rent assignment, to rents collected prior to its possession.

AFFIRMED.

Fuller, Tubb & Pomeroy by David Pomeroy and Terry Stokes, Oklahoma City, for appellants.

Gable & Gotwals by Richard W. Gable, Tulsa, for appellee.

HODGES, Justice.

[798 P.2d 619]

¶1 Appellee, Teachers Insurance and Annuity Association of America (Teachers), brought a foreclosure action against appellants, Oklahoma Tower Associates Limited Partnership, and Tower Associates Wrap Corporation (collectively OTALP). Center City, Inc. (CCI) was also named as a defendant.

¶2 This is an appeal under Okla. Stat. tit. 12, § 993 (A)(5)

¶3 There are two predominant theories of mortgage law: the lien theory and the title theory.

¶4 In the absence of an enforceable rent assignment, the right to rents from mortgaged property is determined by which mortgage theory a jurisdiction follows.

¶5 Prior to 1979, Oklahoma prohibited, by common law and for public policy reasons, assignment of rents clauses contained in or executed simultaneously with the mortgage.

¶6 In 1986, the Legislature removed the remaining impediments to the enforcement of rent assignments.

[L]ikewise nothing in this title or in Sections 10 and 11 of Title 42 of the Oklahoma Statutes, shall be construed to prevent a mortgagor, in a mortgage transaction not involving a consumer loan . . . from mortgaging and assigning the rents and profits from the mortgaged real property as additional security for the debts secured by the mortgage, without regard to whether such assignment provides for immediate collection, or collection upon a future default of the mortgagor, by the mortgagee, or its successors, assigns or agents, of the rents and profits so assigned as the same become due; provided that nothing [798 P.2d 621] herein shall be construed to impair the right under other law of the mortgagee to obtain the appointment of a receiver or to become a mortgagee in possession nor does this provision determine the priority of a mortgagee to rents and profits from the mortgaged property. Any mortgagee taking an assignment of rents and profits as described above shall have the obligation to account and pay to the mortgagor regarding any rents and profits actually collected pursuant to such assignment, which are not applied on the indebtedness owing to the mortgagee; however, the mortgagee shall not be deemed to have other fiduciary obligations to the mortgagor resulting from such assignment or be deemed to be in possession of the mortgaged real property, unless the mortgagee also enters into continued physical possession of the mortgaged real property and exercises exclusive operating control of the mortgaged real property.

¶7 It is the effect of this statute which is the basis of the arguments in the present case. OTALP argues that possession of the property is necessary before the mortgagee is entitled to the rents and the 1986 amendment does not change Teachers entitlement to the rents held by CCI prior to possession. This argument is based on the premise that Oklahoma continues to be a lien theory state and that, even with an enforceable rent assignment, in a lien theory state entitlement to rents is based on possession.

¶8 The 1979 amendments to section 4 removed the prohibition against rent assignments if the assignment was not conditioned upon the default of the mortgagor and if the assignment provided for the immediate collection of the rents.

¶9 In 1986, the Legislature amended the statute once again,

¶10 The legislative intent to give a mortgagee the right to rents prior to possession is further evidenced in other provisions of the statute. The mortgagee is accountable to the mortgagor for any rents collected pursuant to the assignment which were not applied to the underlying loan, also a duty of a mortgagee who is in possession.

¶11 Considering the individual provisions and the act as a whole, the Legislature clearly intended to remove the prohibition against rent assignments. In the 1986 amendments, the Legislature expressed its intent that mortgagees should be entitled to rents under valid rent assignments prior to foreclosure or the appointment of a receiver.

¶12 We must now examine the present rent assignment. The assignment, executed contemporaneously with the mortgage, provides:

Assignor does hereby SELL, ASSIGN, TRANSFER, SET OVER and DELIVER unto the Assignee, any and all leases covering the real property, and the buildings and improvements thereon . . . TOGETHER with the immediate and continuing right to collect and receive all of the rents, income, receipts, revenues, issues and profits now due or which may become due or to which Assignor may now or shall hereafter . . . become entitled. . . .

¶13 Under this provision, Teachers had the immediate right to the rents upon execution of the assignment. OTALP was given a license to collect the rent. The rents were to be held in trust and were to be applied, in order of priority, to the taxes and assessments, to the cost of insurance, maintenance and repairs, to obligations under the leases, and then to the payment of the interest and principal on the note and mortgage.

¶14 OTALP argues that because the agreement does not provide for Teachers' immediate possession of the property, there is no indication that the assignment takes effect at any time other than upon default. However, as previously stated, the agreement gave the mortgagee the immediate right to collect the rents.

¶15 OTALP also argues that because the agreement provides that the mortgagee would not become a mortgagee in possession until it took physical possession after default, the mortgagee cannot be entitled to rents prior to possession. In other words, OTALP argues that a mortgagee in possession is entitled to collect rents and is accountable for those rents. Therefore, a mortgagee who is not in possession is not entitled to the rents. We cannot accept this premise as a logical conclusion.

¶16 In addition, OTALP asserts that the trial court erred in ordering the taxes be paid before the rents are turned over to Teachers. The rent assignment required that collected rent first be applied to the payment of taxes. Teachers requested that the rents be turned over to it. The order for the payment of the taxes was within the scope of the issues even though not specifically requested. The court did not err in ordering the payment of the taxes. Further, OTALP, having no right to the rents, was not injured by the order to [798 P.2d 623] pay the taxes and, thus, has no right to complain.

¶17 By amending section 4, the Legislature enhanced the mortgagee's ability to protect its interest. The Legislature removed the prohibition against the enforcement of rent assignments and mortgagee's entitlement to rents prior to possession. The assignment between the parties gave the appellees an immediate right to the rents. Teachers is entitled to the rents held by CCI, and the trial court is affirmed.

¶18 TRIAL COURT AFFIRMED.

¶19 LAVENDER, DOOLIN, ALMA WILSON, KAUGER and SUMMERS, JJ., concur.

¶20 OPALA, V.C.J., and SIMMS, J., concur in result.

¶21 HARGRAVE, C.J., dissents.

Footnotes:

1 Center City, Inc. is not a party to this appeal.

2 Okla. Stat. tit. 12, § 993 (A)(5) (Supp. 1984) provides:

When an order . . . directs the payment of money pendente lite except where granted at an ex parte hearing, refuses to direct the payment of money pendente lite, or vacates or refuses to vacate an order directing the payment of money pendente lite . . . the party aggrieved thereby may appeal the order to the Supreme Court without awaiting the final determination in said cause. . . .

3 Hubble, A New Day for Assignment of Rents Clauses in Oklahoma, 60 Okla.B.J. 1893 (1989).

4 Note, Mortgages: The Right to Rents of Mortgaged Property in Oklahoma, 37 Okla.L.R. 605, 606 (1984).

5 Id. at 608.

6 G. Nelson & D. Whitman, Real Estate Finance Law § 4.20 (2d ed. 1985); Note, supra note 4, at 608.

7 Note, supra note 4, at p. 608.

8 Id.

9 Coursey v. Fairchild, 436 P.2d 35, 38 (Okla. 1967); Okla. Stat. tit. 42, § 10 (1981).

10 Hart v. Bingman, 171 Okla. 429, 43 P.2d 447, 449 (1935); Rives v. Mincks Hotel Co., 167 Okla. 500, 30 P.2d 911, 915 (1934).

11 Hart, 43 P.2d at 450.

12 The amendment provides:

[N]othing in this title or in Sections 10 and 11 of Title 42 of the Oklahoma Statutes, shall be construed to prevent a mortgagor, in a mortgage transaction . . . from mortgaging and assigning the rents and profits from the mortgaged real property as additional security for the debts secured by the mortgage, where such assignment (i) is made contemporaneouly [sic] with the execution of the mortgage, either as a provision therein or by separate instrument, and (ii) covers a lease or leases then existing or thereafter executed, including renewals or extension thereof or substitutes therefor, which cover all or any part of the mortgaged real property, and (iii) is an assignment not conditioned upon a future default by the mortgagor, and (iv) provides for the immediate collection by the mortgagee, or its successors, assigns or agents, of the rents and profits so assigned as the same become due. Any mortgagee taking an assignment of rents and profits as described above shall have the obligation to account and pay to the mortgagor regarding any rents and profits actually collected pursuant to such assignment, which are not applied on the indebtedness owing to the mortgagee; however, the mortgagee shall not be deemed to have other fiduciary obligations to the mortgagor resulting from such assignment or be deemed to be in possession of the mortgaged real property, unless the mortgtagee also enters into continued physical possession of the mortgaged real property and exercises exclusive operating control of the mortgaged real property.

Okla. Stat. tit. 46, § 4 (Supp. 1979) (emphasis added).

13 See Okla. Stat. tit. 46, § 4 (Supp. 1986).

14 Id. (emphasis added).

15 OTALP relies on two bankruptcy cases: Virginia Beach Fed. Sav. & Loan Assoc. v. Wood, 901 F.2d 849 (10th Cir. 1990) and In re Norman Partners, 90-146844 Bk-89-4301-LN, Slip op. (Bankr.W.D.Okla. Aug. 9, 1989). Virginia Beach involved a pre-1986 mortgage. Id. at 851 n. 4. The court did not apply Okla. Stat. tit. 46, § 4 (Supp. 1986), the statute applicable to the present case. Both cases involved bankruptcies and determined the priorities among creditors. We are not compelled to follow federal cases interpreting state law. Thus, we reject In re Norman Partners to the extent it is inconsistent with the opinion we render today.

16 Okla. Stat. tit. 46, § 4 (Supp. 1979).

17 See Okla. Stat. tit. 46, § 4 (Supp. 1986).

18 Okla. Stat. tit. 46, § 4 (Supp. 1986), specifically states that nothing in title 46 or sections 10 and 11 of title 42 shall be construed as preventing the enforcement of rent assignments whether or not the assignment provided for the immediate collection of rents or collection was based on default.

19 59 C.J.S. Mortgages § 305 (1949).