Taking effect on September 22, 2022, the Michigan Uniform Assignment of Rents Act (MUARA) will impact tenants’ rights in situations where landlords default on their loans. This Act also strengthens lenders’ rights, under certain circumstances, to appoint receivers to collect rent payments if one of their borrowers defaults on a loan secured by an income-producing property.
MUARA provides that a lender, in the event of a borrower default, may contact the tenants of one income-producing property to inform tenants that they must pay rents to the lender instead of their landlord. If a lender chooses to do so, the lender must inform the tenant, in the notice, of the tenant’s right to consult with a lawyer in addition to informing the tenant about how and when the tenant should make rent payments to the lender.
MUARA provides a form of notice that lenders may use to contact tenants in this scenario, but lenders may use their own form of notice as long as the requirements above are met. The tenant is required to continue delivering payments to the lender until either (1) a court order declaring otherwise is entered or (2) the lender cancels the arrangement via a signed letter delivered to the tenant.
Tenants should be sure to comply with the instructions in a lender’s notice, as the instructions may substantially alter a tenant’s rights and obligations with regard to rent payments. As long as a tenant complies with the instructions in a lender’s notice, the tenant’s rent obligations will be considered fulfilled. Disregarding the lender’s payment instructions could result in a tenant having to pay rent a second time.
Fortunately, MUARA gives tenants extra time after receiving the lender’s notice to consult with an attorney. In practice, MUARA will make it so that rent payments that are due within 30 days of a tenant receiving notice will not actually be due until 10 days after the next regularly-scheduled rent payment. This way, a tenant will not be in default of rent payments if they need a little extra time to consult with an attorney before acting. This will also allow tenants to better comply with instructions given in the lender’s notice.
Lenders affected by a borrower’s default relating to MUARA should seek the advice of counsel on how to proceed with appointing a receiver and collecting rent payments from tenants in compliance with the Act. Likewise, tenants who receive notice under MUARA from their landlord’s lender should consult an attorney for advice on how to proceed with rent payments to the lender in compliance with the terms of the notice.