CHAPTER 9 - § 9.12 • ASSIGNMENT OF RENTS

• Jurisdiction: Colorado

§ 9.12 • ASSIGNMENT OF RENTS

Colorado is a lien theory state, so a deed of trust beneficiary with an assignment of rents has only an inchoate or passive lien on rents until the lienholder takes some effectual step to subject the rents to the payment of its debt. Megginson v. Hall, 137 P.2d 411 (Colo. 1943); In re RV Centennial P'ship, 202 B.R. 774 (Bankr. D. Colo. 1996). The Bankruptcy Code provides, however, that, after the filing of the bankruptcy petition, the required effectual step to make the lienholder's rights choate consists of filing a notice with the bankruptcy court pursuant to 11 U.S.C. § 546(b), in lieu of commencing foreclosure and seeking the appointment of a state court receiver. 11 U.S.C. § 546(b); Consolidated Capital Income Trust v. Colter, Inc., 47 B.R. 1008 (D. Colo. 1985).

A debtor-in-possession may use property of the bankruptcy estate, including encumbered property, in the ordinary course of business without court or creditor approval. The exception is "cash collateral," which may be used only with the secured creditor's consent or court order. Pre-petition appointment of a receiver or post-petition notice under 11 U.S.C. § 546(b) will make the lender's security...