California Real Estate Practice Exam

"Assignment of rents" in a loan or trust deed:

1. Benefits mortgagee or beneficiary

2. Protects trustor or mortgagor

3. Provides for new buyer to pay rent until title passes

4. Provides that the borrower pays

The correct answer is: Benefits mortgagee or beneficiary

The concept of "assignment of rents" in the context of a loan or trust deed is primarily structured to protect the interests of the mortgagee or beneficiary. When a property owner (the trustor or mortgagor) defaults on their loan obligations, the lender can exercise the assignment of rents clause, allowing them to collect rental income directly from tenants of the property. This mechanism serves a significant purpose: it assures the lender that they can recover some of their investment even if the property owner is not fulfilling their payment obligations. By allowing the lender to collect rents, they gain immediate access to cash flow from the property, mitigating their losses while they work through the process of either forcing a sale or dealing with the default. The other options do not accurately capture the primary function of an assignment of rents. While the borrower’s obligations do involve paying their debts, and a new buyer's payment of rent could be discussed in a separate context, these scenarios do not highlight the importance of the assignment of rents as a protective measure for the lender. The assignment of rents is specifically designed to ensure that the mortgagee or beneficiary has a steady source of income in the event of default, emphasizing its pivotal role in protecting their financial interests.