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Mavroudis & Rizzo, P.A. v. Bank of the Hudson

A-874-98T3 (N.J. Super. App. Div. 1999) (Unpublished)

MORTGAGES; ASSIGNMENT OF LEASES—If a tenant’s maintenance payments are made outside of its lease agreement and an assignment of leases to a mortgagee does not include these payments as part of the definition of rent, they are not subject to the assignment.

A property owner mortgaged its property to a bank. Upon default, the bank commenced a mortgage foreclosure action and also sought to enforce an assignment of leases. In settlement of the foreclosure action, the property owner granted a deed in lieu of foreclosure to the bank and gave it an assignment of rents. A tenant related to the original property owner had been paying for cleaning and maintenance supplies for the building’s common areas. A second tenant paid to the first a monthly sum representing one-half of those maintenance expenses. When the bank discovered the situation, it demanded that the second tenant pay its share of the monthly expenses directly to it, and that tenant did so on two occasions. Consequently, the first tenant (related to the original property owner) demanded that the bank remit the payments to it. It asserted that the monthly payments were a private agreement between the two tenants and, as such, were outside of the lease between the tenants and their landlord. It argued that as a result, the payment was not subject to the terms of the assignment of leases. Upon review of the record below, the Court found no genuine issue of material fact. The settlement agreement between the bank and the property owner did not define the term “rents.” Further, the bank made no reference to the actual leases between the original property owner (its borrower) and its tenants. Accordingly, the complaining tenant’s assertion that the agreement between the two tenants was outside the terms of the leases stood unrebutted. The bank was required to return the payments.


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