- assignments basic law
Assignments: The Basic Law
The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.
As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.
The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.
Basic Definitions and Concepts:
An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).
An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.
The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.
Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.
No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.
Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)
The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.
The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)
The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.
More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.
And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.
Novation Compared to Assignment:
Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”
A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.
Equitable Assignments:
An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.
In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.
An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.
Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .
But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.
Enforceability of Assignments:
Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.
In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.
After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.
Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.
Assignment of Contractual Rights:
Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.
If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.
In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).
On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.
The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.
Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.
A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.
Noncompete Clauses and Assignments:
Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.
A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.
Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.
Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.
A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.
Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.
A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.
Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.
It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)
It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.
Conclusion:
In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.
As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.
One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.
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Assigning debts and other contractual claims - not as easy as first thought
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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Debt Assignment and Assumption Agreement
Choose the state where this Agreement will be signed. This is usually the state where the debt was initially incurred, or where the creditor resides or does business.
Debt Assignment & Assumption Agreement
This Debt Assignment and Assumption Agreement ("Agreement") is made by and between the following parties: ________ , hereinafter known as "Assignor," having an address at the following:
________ , hereinafter known as "Assignee," having an address at the following:
and ________ , hereinafter known as "Creditor", having an address at the following:
This Agreement is made for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged.
Article 1 - ASSIGNMENT:
Assignor, an individual, hereby assigns, transfers, and conveys all of Assignor's debt (the "Debt") to Creditor, an individual, specifically in the total amount of $ ________ (________), to Assignee, an individual.
Article 2 - JOINT LIABILITY AND ASSUMPTION:
While Assignee accepts and assumes responsibility for repayment of the Debt as outlined within this Agreement and within the original debt contract, attached herein, Assignor and Assignee will become jointly liable for the Debt to Creditor. Creditor shall initially seek repayment from Assignee, but if Assignor defaults, Creditor may seek full repayment from Assignee.
Article 3 - REPAYMENT TERMS:
The repayment terms will be modified and Assignee will pay Creditor back as follows:
Article 4 - BINDING EFFECT:
This Agreement shall be valid and binding upon all of Assignor and Assignee's successors, transferees, heirs, and assigns.
Article 5 - GOVERNING LAW:
This Agreement shall be governed by and construed in accordance with the internal laws of Alabama without giving effect to any choice or conflict of law provision or rule. Each party irrevocably submits to the exclusive jurisdiction and venue of the federal and state courts located in the following county: ________ .
Article 6 - HEADINGS:
Headings to this Agreement are for convenience only. Headings shall in no way affect the provisions themselves and shall not be construed in any way that would limit or otherwise affect the terms of this Agreement.
Article 7 - 88 288525885588:
82 225828852822 22 2588 825222222 85588 82 85885 528288 82 8582822 525 882225 82 588 2552828.
Article 8 - 88 WAIVER:
8222 22 252 22528 22 2588 825222222 85588 82 522225 22 5582 8222 858825 82 522 582 25 588582882282 22 522 25522. 8282 52 5558282258 8582222 525222222 852 8228282522 858825 22 522 22 252 22528 22 2588 825222222 8228222 252 2552828. 82 858825 22 522 2252 25 252888822 22 2588 825222222 85588 8228282522 5 858825 22 522 22525 2252 25 252888822 25 22 252 8522 252888822 22 5 252552 5522. 2588552 22 522 25522 22 2222582 522 2252 22 2588 825222222 85588 222 8228282522 858825 22 8585 2252 25 522 22525 2252.
IN WITNESS WHEREOF, Assignor, Assignee, and Creditor have caused this Assignment to be executed on the following date: ________ .
Signature:_____________________________
State of Alabama
NOTARIZATION TO BE SIGNED BY ASSIGNEE:
State: Alabama
County: ________
On the following date: ________________________ before me personally appeared the above signatory. I am a Notary Public in and for the state of Alabama and the signatory above is personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name is signed herein and acknowledged that he/she/they executed the same.
WITNESS my hand and official seal:
Name: __________________________________
Signature: _______________________________
My commission expires: ____________________
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English law assignments of part of a debt: Practical considerations
United Kingdom | Publication | December 2019
Enforcing partially assigned debts against the debtor
The increase of supply chain finance has driven an increased interest in parties considering the sale and purchase of parts of debts (as opposed to purchasing debts in their entirety).
While under English law part of a debt can be assigned, there is a general requirement that the relevant assignee joins the assignor to any proceedings against the debtor, which potentially impedes the assignee’s ability to enforce against the debtor efficiently.
This note considers whether this requirement may be dispensed with in certain circumstances.
Can you assign part of a debt?
Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1 This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment.
Joining the assignor to proceedings against the debtor
While both equitable and legal assignments are capable of removing the assigned asset from the insolvency estate of the assignor, failure to obtain a legal assignment and relying solely on an equitable assignment may require the assignee to join the relevant assignor as a party to any enforcement action against the debtor.
An assignee of part of a debt will want to be able to sue a debtor in its own name and, if it is required to join the assignor to proceedings against the debtor, this could add additional costs and delays if the assignor was unwilling to cooperate. 2
Kapoor v National Westminster Bank plc
English courts have, in recent years, been pragmatic in allowing an assignee of part of a debt to sue the debtor in its own name without the cooperation of the assignor.
In Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan 3 the court held that an equitable assignee of part of a debt is entitled in its own right and name to bring proceedings for the assigned debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but the requirement is a procedural one that can be dispensed with by the court.
The reason for the requirement that an equitable assignee joins the assignor to proceedings against the debtor is not that the assignee has no right which it can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.
Application of Kapoor
It is a common feature of supply chain finance transactions that the assigned debt (or part of the debt) is supported by an independent payment undertaking. Such independent payment undertaking makes it clear that the debtor cannot raise defences and that it is required to pay the relevant debt (or part of a debt) without set-off or counterclaim. In respect of an assignee of part of an independent payment undertaking which is not disputed and has itself been equitably assigned to the assignee, we believe that there are good grounds that an English court would accept that the assignee is allowed to pursue an action directly against the debtor without needing the assignor to be joined, as this is likely to be a matter of procedure only, not substance.
This analysis is limited to English law and does not consider the laws of any other jurisdiction.
Notwithstanding the helpful clarifications summarised in Kapoor, as many receivables financing transactions involve a number of cross-border elements, assignees should continue to consider the effect of the laws (and, potentially court procedures) of any other relevant jurisdictions on the assignment of part of a debt even where the sale of such partial debt is completed under English law.
Legal title cannot be assigned in respect of part of a debt. A partial assignment would not satisfy the requirements for a legal assignment of section 136 of the Law of Property Act 1925.
If an assignor does not consent to being joined as a plaintiff in proceedings against the debtor it would be necessary to join the assignor as a co-defendant. However, where an assignor has gone into administration or liquidation, there may be a statutory prohibition on joining such assignor as a co-defendant (without the leave of the court or in certain circumstances the consent of the administrator).
[2011] EWCA Civ 1083
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The Treatment of Debt as Consideration
The HSR Act provides that “no person shall acquire, directly or indirectly, any voting securities or assets of any other person” without first complying with the notification requirements if certain conditions are met. The first step in complying with the HSR Act’s notification requirements is to determine whether the transaction satisfies the size of transaction test. Section 801.10 of the Rules provides the basis for this determination, which in many cases hinges on the Acquisition Price.
Section 801.10(c)(2) of the Rules states that Acquisition Price “shall include the value of all consideration for such voting securities, non-corporate interests or assets to be acquired.” The original Statement of Basis and Purpose promulgating the Rules (the 1978 SBP) provides useful background on the intent of 801.10, advising that “cash, voting securities, non-voting securities, tangible and intangible assets and assumption of liabilities , if consideration for an acquisition, must all be valued in computing the acquisition price.” 43 FR 33450, 33471 (Jul. 31, 1978) (emphasis added).
The 1978 SBP makes it clear that, under 801.10(c)(2), the assumption of liabilities must be included in the Acquisition Price if it is part of the consideration. Up until now, the Bureau advised that the retirement of debt should never be included in this calculation. This approach was based on the Bureau’s understanding of debt in the earliest days of the HSR program. The Bureau no longer considers this the correct approach because, as a result of developments in deal structures and financing, sometimes the retirement of debt is part of the consideration for a transaction in that it benefits the selling shareholder(s). Therefore, while the Bureau acknowledges that not all debt retired as a part of a proposed transaction is consideration, the full or partial retirement of debt should be included in calculating the Acquisition Price in any instance where selling shareholder(s) benefit from the retirement of that debt. This approach better reflects the intent of the Rule as reflected in the 1978 SBP.
The blog post announcing this change .
(08-26-2021)
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Corporate Debt
Assignment of Accounts Receivable: Meaning, Considerations
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.
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Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.
:max_bytes(150000):strip_icc():format(webp)/CharleneRhinehartHeadshot-CharleneRhinehart-ca4b769506e94a92bc29e4acc6f0f9a5.jpg "debt assignment consideration")
Investopedia / Jiaqi Zhou
What Is Assignment of Accounts Receivable?
Assignment of accounts receivable is a lending agreement whereby the borrower assigns accounts receivable to the lending institution. In exchange for this assignment of accounts receivable, the borrower receives a loan for a percentage, which could be as high as 100%, of the accounts receivable.
The borrower pays interest, a service charge on the loan, and the assigned receivables serve as collateral. If the borrower fails to repay the loan, the agreement allows the lender to collect the assigned receivables.
Key Takeaways
- Assignment of accounts receivable is a method of debt financing whereby the lender takes over the borrowing company's receivables.
- This form of alternative financing is often seen as less desirable, as it can be quite costly to the borrower, with APRs as high as 100% annualized.
- Usually, new and rapidly growing firms or those that cannot find traditional financing elsewhere will seek this method.
- Accounts receivable are considered to be liquid assets.
- If a borrower doesn't repay their loan, the assignment of accounts agreement protects the lender.
Understanding Assignment of Accounts Receivable
With an assignment of accounts receivable, the borrower retains ownership of the assigned receivables and therefore retains the risk that some accounts receivable will not be repaid. In this case, the lending institution may demand payment directly from the borrower. This arrangement is called an "assignment of accounts receivable with recourse." Assignment of accounts receivable should not be confused with pledging or with accounts receivable financing .
An assignment of accounts receivable has been typically more expensive than other forms of borrowing. Often, companies that use it are unable to obtain less costly options. Sometimes it is used by companies that are growing rapidly or otherwise have too little cash on hand to fund their operations.
New startups in Fintech, like C2FO, are addressing this segment of the supply chain finance by creating marketplaces for account receivables. Liduidx is another Fintech company providing solutions through digitization of this process and connecting funding providers.
Financiers may be willing to structure accounts receivable financing agreements in different ways with various potential provisions.
Special Considerations
Accounts receivable (AR, or simply "receivables") refer to a firm's outstanding balances of invoices billed to customers that haven't been paid yet. Accounts receivables are reported on a company’s balance sheet as an asset, usually a current asset with invoice payments due within one year.
Accounts receivable are considered to be a relatively liquid asset . As such, these funds due are of potential value for lenders and financiers. Some companies may see their accounts receivable as a burden since they are expected to be paid but require collections and cannot be converted to cash immediately. As such, accounts receivable assignment may be attractive to certain firms.
The process of assignment of accounts receivable, along with other forms of financing, is often known as factoring, and the companies that focus on it may be called factoring companies. Factoring companies will usually focus substantially on the business of accounts receivable financing, but factoring, in general, a product of any financier.
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Assignment Of Debt
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What is an Assignment Of Debt?
Assignment of debt is an agreement that transfer debt, rights, and obligations from a creditor to a third party. Assignment of debt agreements are commonly found when a creditor issues past due debt to a debt collection agency. The original lender will be relieved of all obligations and the agency will become the new owner of the debt. Debt assignment allows creditors to improve liquidity by reducing their financial risk. If a creditor has taken on a large amount of unsecured debt, an assignment of debt agreement is a quick way to transfer some of the unsecured loans to another party.
Common Sections in Assignments Of Debt
Below is a list of common sections included in Assignments Of Debt. These sections are linked to the below sample agreement for you to explore.
Assignment Of Debt Sample
Reference : Security Exchange Commission - Edgar Database, EX-10 19 ex107.htm ASSIGNMENT OF DEBT AND SECURITY , Viewed October 24, 2021, View Source on SEC .
Who Helps With Assignments Of Debt?
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Meet some of our Assignment Of Debt Lawyers
and I am an attorney Licensed in California and Mexico, with over 14 years of experience. I have extensive experience working as an in-house counsel in executive roles in companies such as Anheuser-Busch, Campari Group, Grupo Lala as well as Tier 1 law firms.
I was born and raised in New York and am a dual national of the U.S. and France. I am admitted to the bar of New York where I have my base and I have also lived and worked in France and Italy for many years. My practice is virtual with most business conducted by video conference, email and phone calls. I meet clients, co-counsel and others in person at their locations as needed. I obtained my law degree from Boston University. My undergraduate studies were done at Fairfield University, the University of Florence and the American University of Paris. I served as general counsel to the French consulate in Boston from 1993 to 1999 representing the French government and French citizens living and doing business in New England. My clients have included the City of New York, the New York Stock Exchange and numerous dot coms, negotiating and drafting tech contracts and advising them on international business issues. In my asset recovery and investigation work, I have obtained multi-million-dollar judgments against defendants in fraud cases. Please visit my website: ptd-law.com
I’m a semi-retired, long-time US attorney with substantial experience in business and corporate law. I counsel startups and small businesses, help them set up corporations or LLCs across the country and draft a variety of contracts and corporate documents.
Lindsey has always been deeply invested in the power of knowledge; she was born and raised in Columbus, Ohio before making her way to Miami University for a dual Bachelor's degree. Afterward, Lindsey completed a Juris Doctor at Stetson University with an International Law concentration before earning a Health & Hospital law Certificate from Seton Hall School of Law. After graduating law school, Lindsey began her career as an associate at a Florida-based insurance litigation firm. She eventually transitioned to become a multi-year Rising Star in Employment Law by Super Lawyers as a labor and employment lawyer with Scott Wagner and Associates, supporting clients in Florida, California & Ohio with employment law matters. Her expertise covers counseling on workplace policies/handbooks; investigations into EEO discrimination/retaliation claims; wage disputes & wrongful terminations - equipping employees across multiple states for success in the ever-changing modern workforce landscape. Leveraging extensive knowledge of state/federal regulations gained from handling dozens of cases over many years, Lindsey has established herself as a leader in the field. Lindsey is a seasoned litigator, well-versed in the complexities of employer and employee disputes. She has represented clients on both sides during numerous mediations and provides an informed perspective when advocating for her clients' interests. She sharpened her dispute resolution skills by completing Harvard Law School's Negotiation Mediation course as part of their Executive Education Program as well as a Florida Circuit Civil Certified Mediator - making her qualified to mediate Circuit Civil cases in Florida as well as California and Ohio. Her breadth of knowledge provides valuable insight into the complexities each side faces while navigating their way through conflict mediation situations. With her varied expertise in the world of entertainment industry employment law, Lindsey has become a go-to source for Hollywood professionals, studios, and companies looking to make sure their legal considerations and entertainment contract law knowledge is up to date. From contract negotiations and employment advice to her outstanding knowledge of current regulations, she provides clients with everything they need for success both now and into the future. Lindsey dedicates her time and expertise to advancing the legal community. She proudly serves on the Executive Council for Florida Bar Association Labor and Employment Section, as well as with American Bar's Membership Outreach Committee in a leadership role. Lindsey is also an respected LA Magazine Editorial Board Member while Co-Chairing both LACBA CLE Event Dinner Committees - focusing on labor and employment law developments. Lindsey is passionate about providing accessible legal services to those in need. She serves on the Pro Bono Mediation Panel for the U.S Central District Court of California, volunteers as a mediator with California Lawyers for Arts and acts as Settlement Officer with Los Angeles Superior Court's ResolveLA program - all while donating her time towards resolving disputes through pro bono mediation at Equal Employment Opportunities Commission (EEOC). Lindsey is a globetrotter, an outdoor enthusiast, and dedicated sports fan all rolled into one. While splitting time between California, Florida and Ohio she has the best of three world - from hiking trails to family gatherings there's always something interesting on her horizon! Plus with photography as a hobby Lindsey enjoys capturing life’s precious moments so they can be treasured for years to come.
Robert is a sixth-generation Tennessean and part of a long line of Tennessee attorneys: There has been a Marks attorney in Tennessee since 1856. In 1929, Robert’s great-grandfather established an event venue, Shadowbrook, which Robert has worked at his entire life, including managing for 10 years. He knows what business owners are dealing with—especially venue owners—because he has dealt with it. While Robert loves the hospitality industry, he pursued his passion. In 2016, Robert decided to attend law school and continue managing the business. He thrived. He was a founding member of the Nashville School of Law's Legal Aid Society, received the Tennessee Supreme Court’s Law Student for Justice award, and interned with the Tennessee Supreme Court's Access to Justice Commission. Before co-founding Mercury Legal Group, Robert focused on estate planning in solo practice. In this role, he helped clients protect what they had spent a lifetime building. Now he helps his clients build their businesses by providing tailored legal services.
Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal documents, as well as filling LLC and other business entity formation documents.
For over 20 years, as an attorney and real estate broker, Candace has used her passion for business and real estate to help her clients succeed as business owners, entrepreneurs Realtors, and real estate investors. She and her team go above and beyond to simplify and solve those issues which trouble her clients. From the simple to the complex, she is ready to help. Her experience includes, Real Estate law, Contracts, Business Formation, Business Operating AGreements and Entrepreneurial counseling.
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Consideration for Assignment Sample Clauses
When will the assumption of debt be chargeable consideration?
Chargeable consideration , joint tenants , release or assumption of debt.
“1. Mummy and son own a BTL in equal shares. The Property is currently valued at approximately £300,000
2. The value of the existing mortgage with Lender 1 is approximately £167,000
3. Mummy will transfer her 50% share in the property to her son for nil consideration (gift) and son will simultaneously re-mortgage the Property in favour of a new Lender 2.
Given the above, in real terms the value of the gifted element will be our client’s 50% share of the Property (being £150,000) less 50% of the existing mortgage (being approximately £83,500), therefore making the total value of the gifted element as £66,500.
However, the existing debt, Lender 1, is classed as consideration. HMRC class the transaction as being an assumption of the outgoing party’s share of debt in the property (£83,500) by the transferee and therefore the redeemed charge is classed as an associated discharge. Whilst this figure is under the £125,000 threshold for SDLT, as the property is not the son’s main residence is he caught by the increased rate and does he have to pay 3% SDLT on the £83,500? Seems a little unfair to me, given that he has already paid stamp duty when he originally purchased the property. Is the transfer of equity considered a “purchase” for such purposes?”
Source: BLG Member
Yes the son will be liable for the 3% surcharge on the 50% share he acquires.
Where there is the release or assumption of a debt (or the transfer of a property subject to a debt) the debt can constitute chargeable consideration for SDLT purposes. The relevant provisions are in paragraph 8 of Schedule 4 FA 2003.
The basic rule is that where the consideration for a land transaction consists in whole or in part of:
1) the satisfaction or release of debt due to the purchaser or owed by the vendor (paragraph 8(1)(a)); or
2) the assumption of ‘existing debt’ by the purchaser (paragraph 8(1)(b)),
the amount of debt satisfied, released or assumed is taken to be the whole or, as the case may be, part of the chargeable consideration for the transaction.
1) debt is secured on the property immediately before and after the land transaction; and
2) the rights or liabilities of any party in relation to that debt are changed as a result of or in connection with the transaction,
there is taken to be an assumption of debt by the purchaser falling within paragraph 8(1)(b).
This is an anti-avoidance provision intended to prevent parties temporarily paying off secured debt before property is transferred and reinstating it immediately afterwards.
If there are two or more purchasers or vendors with undivided shares in the property the amount of secured debt treated as assumed is determined on the basis that the proportion of the amount owed by a person corresponds to the share that they own in the property subject to the debt. For this purpose joint tenants are treated as owning the property in equal shares.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
For more information on SDLT please see Ann’s Stamp Duty Land Tax Questions & Answers . This free resource covers a wide variety of SDLT queries and they can be filtered by subject to find specific queries of interest.
To be notified when new Q&As are published please sign up for alerts here.
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B3-6-05, Monthly Debt Obligations (05/04/2022)
Introduction.
This topic describes obligations that should be considered in underwriting the loan, including:
- Alimony, Child Support, and Separate Maintenance Payments
- Bridge / Swing Loans
- Business Debt in Borrower’s Name
- Court-Ordered Assignment of Debt
- Debts Paid by Others
- Non-Applicant Accounts
- Deferred Installment Debt
- Federal Income Tax Installment Agreements
- Garnishments
- Home Equity Lines of Credit
- Installment Debt
- Lease Payments
- Rental Housing Payment
- Loans Secured by Financial Assets
- Open 30–Day Charge Accounts
- Other Real Estate Owned—Qualifying Impact
- Revolving Charge/Lines of Credit
- Student Loans
Alimony, Child Support, and Separate Maintenance Payments
When the borrower is required to pay alimony, child support, or separate maintenance payments under a divorce decree, separation agreement, or any other written legal agreement—and those payments must continue to be made for more than ten months—the payments must be considered as part of the borrower’s recurring monthly debt obligations. However, voluntary payments do not need to be taken into consideration and an exception is allowed for alimony. A copy of the divorce decree, separation agreement, court order, or equivalent documentation confirming the amount of the obligation must be obtained and retained in the loan file.
For alimony and separate maintenance obligations, the lender has the option to reduce the qualifying income by the amount of the obligation in lieu of including it as a monthly payment in the calculation of the DTI ratio.
Note : For loan casefiles underwritten through DU, when using the option of reducing the borrower’s monthly qualifying income by the alimony or separate maintenance payment, the lender must enter the amount of the monthly obligation as a negative alimony or separate maintenance income amount. (If the borrower also receives alimony or separate maintenance income, the amounts should be combined and entered as a net amount.)
Bridge / Swing Loans
When a borrower obtains a bridge (or swing) loan, the funds from that loan can be used for closing on a new principal residence before the current residence is sold. This creates a contingent liability that must be considered part of the borrower’s recurring monthly debt obligations and included in the DTI ratio calculation.
Fannie Mae will waive this requirement and not require the debt to be included in the DTI ratio if the following documentation is provided:
a fully executed sales contract for the current residence, and
confirmation that any financing contingencies have been cleared.
Business Debt in Borrower’s Name
When a self-employed borrower claims that a monthly obligation that appears on their personal credit report (such as a Small Business Administration loan) is being paid by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds and that this was considered in its cash flow analysis of the borrower’s business.
The account payment does not need to be considered as part of the borrower’s DTI ratio if:
the account in question does not have a history of delinquency,
the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled company checks), and
the lender’s cash flow analysis of the business took payment of the obligation into consideration.
The account payment must be considered as part of the borrower’s DTI ratio in any of the following situations:
If the business does not provide sufficient evidence that the obligation was paid out of company funds.
If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense—and taxes and insurance, if applicable—equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not been accounted for in the cash flow analysis.
If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account in question.
Court-Ordered Assignment of Debt
When a borrower has outstanding debt that was assigned to another party by court order (such as under a divorce decree or separation agreement) and the creditor does not release the borrower from liability, the borrower has a contingent liability. The lender is not required to count this contingent liability as part of the borrower’s recurring monthly debt obligations.
The lender is not required to evaluate the payment history for the assigned debt after the effective date of the assignment. The lender cannot disregard the borrower’s payment history for the debt before its assignment.
Debts Paid by Others
Certain debts can be excluded from the borrower’s recurring monthly obligations and the DTI ratio:
When a borrower is obligated on a non-mortgage debt - but is not the party who is actually repaying the debt - the lender may exclude the monthly payment from the borrower's recurring monthly obligations. This policy applies whether or not the other party is obligated on the debt, but is not applicable if the other party is an interested party to the subject transaction (such as the seller or real estate agent). Non-mortgage debts include installment loans, student loans, revolving accounts, lease payments, alimony, child support, and separate maintenance. See below for treatment of payments due under a federal income tax installment agreement.
When a borrower is obligated on a mortgage debt - but is not the party who is actually repaying the debt - the lender may exclude the full monthly housing expense (PITIA) from the borrower’s recurring monthly obligations if
the party making the payments is obligated on the mortgage debt,
there are no delinquencies in the most recent 12 months, and
the borrower is not using rental income from the applicable property to qualify.
In order to exclude non-mortgage or mortgage debts from the borrower’s DTI ratio, the lender must obtain the most recent 12 months' canceled checks (or bank statements) from the other party making the payments that document a 12-month payment history with no delinquent payments.
When a borrower is obligated on a mortgage debt, regardless of whether or not the other party is making the monthly mortgage payments, the referenced property must be included in the count of financed properties (if applicable per B2-2-03, Multiple Financed Properties for the Same Borrower .
Non-Applicant Accounts
Credit reports may include accounts identified as possible non-applicant accounts (or with other similar notation). Non-applicant accounts may belong to the borrower, or they may truly belong to another individual.
Typical causes of non-applicant accounts include:
applicants who are Juniors or Seniors,
individuals who move frequently,
unrelated individuals who have identical names, and
debts the borrower applied for under a different Social Security number or under a different address. These may be indicative of potential fraud.
If the debts do not belong to the borrower, the lender may provide supporting documentation to validate this, and may exclude the non-applicant debts for the borrower’s DTI ratio. If the debts do belong to the borrower, they must be included as part of the borrower’s recurring monthly debt obligations.
Deferred Installment Debt
Deferred installment debts must be included as part of the borrower’s recurring monthly debt obligations. For deferred installment debts other than student loans, if the borrower’s credit report does not indicate the monthly amount that will be payable at the end of the deferment period, the lender must obtain copies of the borrower’s payment letters or forbearance agreements so that a monthly payment amount can be determined and used in calculating the borrower’s total monthly obligations.
For information about deferred student loans, see Student Loans below.
Federal Income Tax Installment Agreements
When a borrower has entered into an installment agreement with the IRS to repay delinquent federal income taxes, the lender may include the monthly payment amount as part of the borrower’s monthly debt obligations (in lieu of requiring payment in full) if:
There is no indication that a Notice of Federal Tax Lien has been filed against the borrower in the county in which the subject property is located.
The lender obtains the following documentation:
an approved IRS installment agreement with the terms of repayment, including the monthly payment amount and total amount due; and
evidence the borrower is current on the payments associated with the tax installment plan. Acceptable evidence includes the most recent payment reminder from the IRS, reflecting the last payment amount and date and the next payment amount owed and due date. At least one payment must have been made prior to closing.
As a reminder, lenders remain responsible under the life-of-loan representations and warranties for clear title and first-lien enforceability in accordance with A2-2-07, Life-of-Loan Representations and Warranties .
The payments on a federal income tax installment agreement can be excluded from the borrower’s DTI ratio if the agreement meets the terms in Debts Paid by Others or Installment Debt described above. If any of the above conditions are not met, the borrower must pay off the outstanding balance due under the installment agreement with the IRS in accordance with B3-6-07, Debts Paid Off At or Prior to Closing
Garnishments
All garnishments with more than ten months remaining must be included in the borrower’s recurring monthly debt obligations for qualifying purposes.
Home Equity Lines of Credit
When the mortgage that will be delivered to Fannie Mae also has a home equity line of credit (HELOC) that provides for a monthly payment of principal and interest or interest only, the payment on the HELOC must be considered as part of the borrower’s recurring monthly debt obligations. If the HELOC does not require a payment, there is no recurring monthly debt obligation so the lender does not need to develop an equivalent payment amount.
Installment Debt
All installment debt that is not secured by a financial asset—including student loans, automobile loans, personal loans, and timeshares—must be considered part of the borrower’s recurring monthly debt obligations if there are more than ten monthly payments remaining. However, an installment debt with fewer monthly payments remaining also should be considered as a recurring monthly debt obligation if it significantly affects the borrower’s ability to meet their credit obligations. See below for treatment of payments due under a federal income tax installment agreement.
Note: A timeshare account should be treated as an installment debt regardless of how it is reported on the credit report or other documentation (that is, even if reported as a mortgage loan).
Lease Payments
Lease payments must be considered as recurring monthly debt obligations regardless of the number of months remaining on the lease. This is because the expiration of a lease agreement for rental housing or an automobile typically leads to either a new lease agreement, the buyout of the existing lease, or the purchase of a new vehicle or house.
Rental Housing Payment
The housing payment for each borrower’s principal residence must be considered when underwriting the loan. For the following scenarios, the borrower’s monthly rental housing payment must be evaluated (if the borrower does not otherwise have a mortgage payment or no housing expense):
for non-occupant borrowers, and
for second homes or investment properties.
The following list provides examples of acceptable documentation to verify the rental payment:
six months canceled checks or equivalent payment source;
six months bank statements reflecting a clear and consistent payment to an organization or individual;
direct verification of rent from a management company or individual landlord; or
a copy of a current, fully executed lease agreement and two months canceled checks (or equivalent payment source) supporting the rental payment amount.
Note: Refer to B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History for rental payment history requirements when using non-traditional credit.
Loans Secured by Financial Assets
When a borrower uses their financial assets—life insurance policies, 401(k) accounts, individual retirement accounts, certificates of deposit, stocks, bonds, etc.—as security for a loan, the borrower has a contingent liability.
The lender is not required to include this contingent liability as part of the borrower’s recurring monthly debt obligations provided the lender obtains a copy of the applicable loan instrument that shows the borrower’s financial asset as collateral for the loan. If the borrower intends to use the same asset to satisfy financial reserve requirements, the lender must reduce the value of the asset (the account balance, in most cases) by the proceeds from the secured loan and any related fees to determine whether the borrower has sufficient reserves.
Note: Payment on any debt secured by virtual currency is an exception to the above policy and must be included when calculating the debt-to-income ratio.
Open 30–Day Charge Accounts
Open 30–day charge accounts require the balance to be paid in full every month. Fannie Mae does not require open 30–day charge accounts to be included in the debt-to-income ratio.
See B3-6-07, Debts Paid Off At or Prior to Closing , for additional information on open 30–day charge accounts.
Other Real Estate Owned—Qualifying Impact
For details regarding the qualifying impact of other real estate owned, see B3-6-06, Qualifying Impact of Other Real Estate Owned .
Revolving Charge/Lines of Credit
Revolving charge accounts and unsecured lines of credit are open-ended and should be treated as long-term debts and must be considered part of the borrower's recurring monthly debt obligations. These tradelines include credit cards, department store charge cards, and personal lines of credit. Equity lines of credit secured by real estate should be included in the housing expense.
If the credit report does not show a required minimum payment amount and there is no supplemental documentation to support a payment of less than 5%, the lender must use 5% of the outstanding balance as the borrower's recurring monthly debt obligation.
For DU loan casefiles, if a revolving debt is provided on the loan application without a monthly payment amount, DU will use the greater of $10 or 5% of the outstanding balance as the monthly payment when calculating the total debt-to-income ratio.
Student Loans
If a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes. If the credit report does not reflect the correct monthly payment, the lender may use the monthly payment that is on the student loan documentation (the most recent student loan statement) to qualify the borrower.
If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the lender must determine the qualifying monthly payment using one of the options below.
If the borrower is on an income-driven payment plan, the lender may obtain student loan documentation to verify the actual monthly payment is $0. The lender may then qualify the borrower with a $0 payment.
For deferred loans or loans in forbearance, the lender may calculate
a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or
a fully amortizing payment using the documented loan repayment terms.
Recent Related Announcements
The table below provides references to recently issued Announcements that are related to this topic.
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Assigning and enforcing debt
By David Asker on Thursday 30 April 2020
Debts may be assigned by the creditor to another party, the assignee, who may then proceed with further legal action to recover the debt.
There are two forms of assignment of a contract or debt – legal assignment and equitable assignment.
Legal assignment
The Law of Property Act 1925 s 136 sets out three criteria that must be met before a “chose in action”, may be legally assigned. The assignment must be:
- Made in writing
- Notified in writing to the debtor
- Absolute and not by way of a charge
If these are all met, then the assignee takes over the benefit of the debt from the original creditor, the assignor, and becomes the only person who can enforce it. The assignment may be made for financial consideration, but this doesn’t have to be the case.
The assignee acquires the same rights as the assignor had had, including the right to present a winding-up petition, or obtain judgment and instruct a High Court Enforcement Office (HCEO - a form of bailiff) to enforce it under a writ of control. The debtor will now have to pay the assignee – paying the assignor does not discharge the debt.
If the debtor enters into insolvency, the assignee will be considered to be the creditor for dividend purposes.
Equitable assignment
An equitable assignment is where only the benefit of an agreement is assigned. The equitable assignee may not be able to bring an action in his own name against the debtor and may have to join the assignor as party to the action.
An equitable assignment may be made in one of two ways:
- The assignor can inform the assignee that he transfers a right or rights to him
- The assignor can instruct the debtor to pay the assignee instead of the assignor
David Asker
David is an authorised High Court Enforcement Officer and our Director of Corporate Governance
The statements and opinions expressed in this article are those of the author and do not necessarily reflect those of SHCE Ltd, trading as The Sheriffs Office. SHCE Ltd does not take any responsibility for the views of the author. The author will not be held responsible for any comments posted by visitors to this site. Please note that this article does not constitute legal advice. The author has used his best endeavours to make this article as accurate and complete as possible at the date of writing, but requests that the reader be aware that the law of England and Wales frequently changes. The author strongly advises the reader to take legal advice before embarking on any enforcement action. Please see the website terms and conditions regarding reproduction of this article.
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The term debt assignment refers to a transfer of debt, and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party,...
An assignment is the transfer of rights held by one party called the "assignor" to another party called the "assignee." The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment.
A Debt Assignment and Assumption Agreement is a very simple document whereby one party assigns their debt to another party, and the other party agrees to take that debt on. The party that is assigning the debt is the original debtor; they are called the assignor. The party that is assuming the debt is the new debtor; they are called the assignee.
It is the "assignee's burden to prove the assignment" and "an assignee must tender proof of assignment of a particular account or, if there were an oral assignment, evidence of consideration paid and delivery of the assignment." Such assignment must clearly establish that Respondent's account was included in the assignment. A
What is an Assignment Of Debt Agreement? An assignment of debt agreement is a legal document between a debtor and creditor that outlines the repayment terms. An assignment of debt agreement can be used as an alternative to bankruptcy, but several requirements must be met for it to work.
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 …
Debt Assignment & Assumption Agreement. Alabama. This Debt Assignment and Assumption Agreement ("Agreement") ... This Agreement is made for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged. Article 1 - ASSIGNMENT: Assignor, an individual, hereby assigns, ...
Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1 This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment. Joining the assignor to proceedings against the debtor
The 1978 SBP makes it clear that, under 801.10 (c) (2), the assumption of liabilities must be included in the Acquisition Price if it is part of the consideration. Up until now, the Bureau advised that the retirement of debt should never be included in this calculation. This approach was based on the Bureau's understanding of debt in the ...
Assignment of Debt. In consideration for the payment by the Investor to BlueCrest of the sum of $139,728.82, BlueCrest hereby assigns and endorses to the Investor the B Note (the " Assignment ") in the form attached hereto as Exhibit B-2. Sample 1 Sample 2 Sample 3 See All ( 7) Remove Advertising Assignment of Debt.
An assignment of debt is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt. How do you enforce an assigned debt? Once the assignee has validly assigned a debt, they are entitled to take any legal steps available to them to recover the outstanding debt.
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 ...
Assignment of debt is an agreement that transfer debt, rights, and obligations from a creditor to a third party. Assignment of debt agreements are commonly found when a creditor issues past due debt to a debt collection agency. The original lender will be relieved of all obligations and the agency will become the new owner of the debt.
According the Share Transfer Agreement, the consideration of the Target Equity is RMB64,400,000) ... The execution of the Agreement shall be deemed as the effective notice of the assignment of the debt sent by the Transferor to the Transferee. 3.
Consideration for Assignment. Assignor and Assignee represent and warrant that there are no additional payments of rent or any other consideration of any type which has been paid or is payable by Assignee to Assignor in connection with the Assignment or the Premises, other than as is disclosed in the Assignment. Sample 1 Save
1) the satisfaction or release of debt due to the purchaser or owed by the vendor (paragraph 8 (1) (a)); or. 2) the assumption of 'existing debt' by the purchaser (paragraph 8 (1) (b)), the amount of debt satisfied, released or assumed is taken to be the whole or, as the case may be, part of the chargeable consideration for the transaction ...
the lender's cash flow analysis of the business took payment of the obligation into consideration. The account payment must be considered as part of the borrower's DTI ratio in any of the following situations: ... Court-Ordered Assignment of Debt. When a borrower has outstanding debt that was assigned to another party by court order (such ...
repurchase the debt, and taxed accordingly Similarly, if a . party related to the debtor acquires its debt, the acquisition is generally treated as if the debt had been acquired by the debtor itself. This rule can be a trap for the unwary, for example in the case of a private equity sponsor that acquires the debt of one of its portfolio
Legal assignment. The Law of Property Act 1925 s 136 sets out three criteria that must be met before a "chose in action", may be legally assigned. The assignment must be: Made in writing. Notified in writing to the debtor. Absolute and not by way of a charge. If these are all met, then the assignee takes over the benefit of the debt from ...
Jatan Bewa.The next point urged on behalf of the appellant is that the deed of assignment requires registration even though the consideration of the deed is stated to be Rs. 90. It is alleged that registration is necessary because the amount due on the mortgage on that date was more than Rs. 100.