Whether the debtor retained sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate; Assignment of rents in Michigan; MCL 554.231 & 232; Smith v. Mutual Benefit Life Ins. Co. (MI); Otis Elevator Co. v. Mid-America Realty Investors (MI App.); Ashley Livonia A&P, L.L.C. v. Great Atl. & Pac. Tea Co., Inc. (Unpub. MI App.); The assignor’s residual rights; Security Trust Co. v. Sloman (MI); Scope of the bankruptcy estate; Demczyk v. Mutual Life Ins. Co. of NY; United States v. Whiting Pools, Inc.; In re Mount Pleasant Ltd. P’ship (Bankr. WD MI); In re Madison Heights Group, LLC, (Bankr. ED MI); In re Woodmere Investors Ltd. P’ship, (Bankr. SD NY)

[This appeal was from the ED-MI.] In this Chapter 11 bankruptcy case, the court reversed the bankruptcy court’s ruling and held that under Michigan law, the debtor (Town Center Flats) did not retain sufficient rights in the rents that had been assigned to appellee-ECP Commercial II for those rents to be included in the bankruptcy estate. The case involved Town Center’s rights to an assigned stream of rents under Michigan law, which determines whether the rents constitute part of the Chapter 11 bankruptcy estate. The bankruptcy court ruled that Town Center had a continuing property interest in the rents. But the district court disagreed, concluding that an assignment of rents transfers ownership under Michigan law; thus, the rents were not part of the bankruptcy estate. The court agreed with the district court, holding that Town Center “did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate." ECP held the loan that financed Town Center’s apartment complex, and the mortgage agreement provided that if Town Center defaulted, rents would be assigned to ECP. MCL 554.231 permits creditors to collect rents directly from tenants on specific mortgaged properties. Because “Michigan courts have generally treated the assignment of rents as a transfer of ownership once the agreement has been completed and recorded and a default has occurred[,]” the court predicted that “the Michigan Supreme Court would treat a completed assignment of rents as a transfer of ownership.” Given that, under these circumstances, MCL 554.231 permits an ownership transfer, the court concluded that “Town Center did transfer ownership in the assigned rents to ECP before the bankruptcy petition was filed[,]” and that the agreement’s “broad language . . . evidence[d] an intention to transfer ownership.” The court rejected Town Center’s argument that it had a “future interest” in the rents. Further, neither “the Michigan Supreme Court nor the Michigan Court of Appeals has concluded that . . . restrictions on the assignee’s use of rent money create a property right vested in the assignor.” The court held that “Michigan law treats a completed assignment of rents as a change of ownership and the assignor of those rents does not retain residual property rights in the assigned rents.” This result “is in line with the majority of bankruptcy court decisions that have addressed this issue.”