RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b) File Name: 17a0099p.06 

### UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

I N RE : T OWN C ENTER F LATS , LLC, Debtor

.

___________________________________________ T OWN C ENTER F LATS , LLC, Appellant ,

v

.

ECP C OMMERCIAL II LLC, Appellee

. ┐ │ │ │ │ │ │ │ │ │ │ ┘ No. 16-1812

Appeal from the United St ates District Court for the Eastern District of Michigan at Detroit. No. 2:15-cv-11881—Bernard A. Friedman, District Judge. United States Bankruptcy Court for the Eastern District of Mi chigan at Detroit. No. 15-41307—Walter Shapero, Judge. Argued: March 8, 2017 Decided and Filed: May 2, 2017 Before: CLAY, GIBBONS, and STRANCH, Circuit Judges.

_________________ COUNSEL

ARGUED: Robert N. Bassel, Clint on, Michigan, for Appellant. Jeremy S. Friedberg, LEITESS FRIEDBERG, P.C., Baltimore, Maryland, for Appellee. ON BRIEF: Robert N. Bassel, Clinton, Michigan, for Appellant. Jeremy S. Friedberg, LEITES S FRIEDBERG, P.C., Baltimore, Maryland, for Appellee. 

### >No. 16-1812 In re Town Center Flats Page 2

_________________ OPINION

_________________ JANE B. STRANCH, Circuit Judge. This ba nkruptcy case centers on property rights in an assigned stream of rents. The extent of a debtor’s rights in thos e rents under Michigan law
determines whether the rents ar e properly included in a Chapte r 11 bankruptcy estate. The bankruptcy court decided that an assignment of rents creates a security interest, but does not change ownership, and held that an assignor conti nues to have a property interest in the rents. Accordingly, the bankruptcy court included the rents in the bankruptcy estate. The district court vacated the order of the bankruptcy court, finding that an assignm ent of rents is a transfer of ownership under Michigan law and thus the re nts should not be included in the bankruptcy estate. Agreeing with the distri ct court’s reasoning, we hold that the debtor, Town Center Flats, LLC, did not retain sufficient rights in the assign ed rents under Michigan law for those rents to be included in the bankrupt cy estate. We therefore reverse the order of the bankruptcy court.

I. BACKGROUND

A. Factual History
The parties do not dispute the underlying facts. Debtor Town Center Flats, LLC owns a 53-unit residential complex in Shelby Township, Mi chigan. Town Center financed construction of the building with a $5.3 million loan from KeyBank that was later assigned to ECP
Commercial II LLC. The loan was secured with a mortgage and an agreem ent to assign rents to
the creditor in the event of defa ult. In the agreement to assign rents, Town Center “irrevocably, absolutely and unconditionally [agreed to] transfer , sell, assign, pledge and convey to Assignee, its successors and assigns, all of the right, title a nd interest of [Town Center] in . . . income of every nature of and from the Project, incl uding, without limitation, minimum rents [and] additional rents . . . .” The agreement purported to be a “present, absolute and executed grant of the powers herein granted to Assignee,” while s imultaneously granting a license to Town Center
to collect and retain rents until an event of default, at which point the license wouldNo. 16-1812 In re Town Center Flats Page 3

“automatically terminate without notice to [Town Center].” Rent s from the residential complex are Town Center’s only source of income.
On December 31, 2013, Town Center defaulted on its obligation to repay the loan. On December 22, 2014, ECP sent a notice of default and a request for the pa yment of rents to all known tenants of the Town Center property. The notice complied with the terms of the agreement and with Mich. Comp. Laws § 554.231, which allows creditors to collect rents directly from tenants of certain mortgaged pr operties. The following day, ECP recorded the notice documents in Macomb County, Michigan, comp leting the last step required by the statute to make the assignment of rents binding agains t both Town Center a nd the tenants of the property.
On January 23, 2015, ECP filed a complaint in the Circuit Court for Macomb County alleging breach of contract, initi ating foreclosure on the mortgage , and requesting appointment of a receiver to take possession of the Town Cent er property. Approximately one week later on January 31, 2015, Town Center filed for Chapter 11 bankruptcy relief. At the time Town Center filed its petition, Town Center owed ECP $5,329,329 pl us attorney’s fees and costs. The parties have reached an interim agreement to allow Town Center to continue to collect rents from the tenants of the complex, with $15,000 per month us ed to pay down the debt to ECP and the remainder of the rents used for authorized expenses.
B. Procedural History
Town Center’s bankruptcy petition resulted in an automatic stay on the state-court case filed by ECP. See 11 U.S.C. § 362(a) (placing a stay on most judicial ac tions involving the debtor when a bankruptcy petition is filed). In February 2015, ECP f iled a motion to prohibit Town Center from using rents collected after the petition was filed. Town Center opposed the motion and pointed out to the bankruptcy court th at the company would have no income to work with in its Chapter 11 reorganizatio n plan if the rents were not part of the bankruptcy estate. The bankruptcy court agreed with Town Center an d denied ECP’s motion. The bankruptcy court determined that the assigned re nts would qualify as cash collate ral in the bankruptcy estate,No. 16-1812 In re Town Center Flats Page 4

meaning, under Chapter 11, that Town Center must provide “adequate prot ection” to ECP before using the cash. In re Buttermilk Towne Ctr., LLC , 442 B.R. 558, 565 (B.A.P. 6th Cir. 2010).
ECP appealed to the district court and argued that Michigan law established a transfer of ownership in the assigned rents from Town Center to ECP. The district court agreed with ECP and vacated the bankruptcy court’s decision. Town Ce nter appealed to this court. ECP moved to dismiss the appeal for lack of ju risdiction, arguing that the decisions of the lower courts were not final because the bankruptcy case is still open. A motions panel of this court decided that additional proceedings in the bankruptcy court w ould be purely ministerial and that we have jurisdiction over an appeal from a final order. We therefore reach the me rits to decide whether the assigned rents are property of ECP or are part of Town Center’s bankruptcy estate.

II. ANALYSIS

A. Standard of Review and Applicable Law
This court has jurisdiction under 28 U.S.C. § 15 8(d)(1) over appeals of final orders from district courts that have reviewed bankruptcy c ourt decisions. We review the decision of the bankruptcy court “rather than the intermed iate decision of the district court.” Lowenbraun v. Canary ( In re Lowenbraun) , 453 F.3d 314, 319 (6th Cir. 2006). Findings of fact are reviewed
for clear error and conclusions of law are reviewed de novo. Id.
Property rights are determined under the law of the state in which the real property is located, which in this case is Michigan. Using stat e law to define rights promotes the “[u]niform treatment of property interests by both state and federal courts ,” which serves to “reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving ‘a windfall merely by reason of the happenstance of bankruptcy.’” Butner v. United States , 440 U.S. 48, 55 (1979) (quoting Lewis v. Mfrs. Nat’l Bank of Detroit , 364 U.S. 603, 609 (1961)). When the highest court of a state has not spoken directly on an issu e, this court must make an Erie guess as to how that court would resolve it and may look to decisions of intermediate state appellate courts as persuasive authority. Conlin v. Mortg. Elec. Registration Sys., Inc. , 714 F.3d 355, 358- 59 (6th Cir. 2013); see also Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78 (1938). Once property rights have been determined under st ate law, “federal bankruptcy law dictates to what extent thatNo. 16-1812 In re Town Center Flats Page 5

interest is property of the estate.” Bavely v. United States (In re Terwillinger’s Catering Plus, Inc.) , 911 F.2d 1168, 1172 (6th Cir. 1990) (quoting N.S. Garrott & Sons v. Union Planters Nat’l Bank of Memphis (In re N.S. Garrott & Sons) , 772 F.2d 462, 466 (8th Cir. 1985)).
We begin by analyzing the extent of propert y rights held by the as signor and assignee of rents under Michigan law. We then answer th e ultimate question—whether the rights retained by the assignor are sufficient for those rents to be included in the bankruptcy estate.

B. Assignment of Rents in Michigan
As with many issues of propert y rights, the history of the legal doctrine sheds light on the traditional legal rule, which serves to illuminate more recent developments. The traditional rule in Michigan, created by statut e in 1843, was that an assignment of rents was unenforceable
because it would interf ere with a mortgagor’s right of redemption. Smith v. Mut. Ben. Life Ins.
Co. , 106 N.W.2d 515, 518 (Mich. 1960). The default rule in Michigan is therefore that an assignment of rents is unenforceable. Id . A 1925 statute subsequently created a right to assign rents for properties subject to trust mortgages. Id . at 518-19. The Michigan Supreme Court determined that the statute made the “[c]ollection of rents . . . not merely an incident to the right of possession of the land, but . . . a distinct remedy and additional security.” Security Trust Co.
v. Sloman , 233 N.W. 216, 219 (Mich. 1930). Central to this case, a 1953 statute titled “Assignment of Rents to Accrue from Leases as Additional Mortgage Security” extended the ability to assign rents to addi tional categories of property:
Hereafter, in or in connection with any mortgage on comme rcial or industrial property . . . it shall be lawful to assign the rents, or any portion thereof, under any oral or written leases upon the mortgaged pr operty to the mortgagee, as security in addition to the property described in su ch mortgage. Such assignment of rents shall be binding upon such assignor only in the event of default in the terms and conditions of said mortgage, and shall operate against and be binding upon the occupiers of the premises from the date of filing by the mortgagee in the office of the register of deeds for the county in wh ich the property is located of a notice of default in the terms and conditions of the mortgage and service of a copy of such notice upon the occupiers of the mortgaged premises. Mich. Comp. Laws § 554.231.No. 16-1812 In re Town Center Flats Page 6

The Michigan statute also contains a pr ovision about the validity of the assignment:
The assignment of rents, when so made , shall be a good and valid assignment of the rents to accrue under any l ease or leases in existence or coming into existence during the period the mortgage is in effect, against the mortgagor or mortgagors or those claiming under or through them fr om the date of the recording of such mortgage, and shall be binding upon the tenant under the lease or leases upon service of a copy of the in strument under which the assignment is made, together with notice of default as re quired by [the above section].

Id . § 554.232.

1. Assignment of Rents
Michigan courts generally discuss assi gnments of rents under § 554.231 as ownership transfers. The Michigan Supreme Court held that this statute puts the assignee “in the shoes of the mortgagor until the debt is paid , with all his rights to the rents and profits as long as he, under the general law of mortgages, could enjoy them.” Smith , 106 N.W.2d at 520 (quoting Sloman , 233 N.W. at 220). In 1994, the Michigan Court of A ppeals held that a prior- perfected interest in assigned rents had priority over an interest he ld by a judgment creditor who sought to garnish

rents. Otis Elevator Co. v. Mid-America Realty Investors , 522 N.W.2d 732, 733 (Mich. Ct. App. 1994). The judgment creditor “could not garnish rents because [the assignor] no longer had an
interest in the rents.” Id . Once an assignee has: 1) entered into an agreement to assign rents; 2) recorded that agreement; and 3) default has occurred, then the assignee’s rights “are perfected and binding against the assignor” an d the assignor “no longer ha[s ] a valid property interest in
the rents.” Id . at 734. The assignor has th e legal right to collect the rents directly from tenants
once notice of the default has been filed in the county’s register and served on the tenants. Mich. Comp. Laws §§ 554.231, 554.232. Michigan courts ha ve generally treated the assignment of rents as a transfer of ownership once the agre ement has been completed and recorded and a
default has occurred. See Otis Elevator , 522 N.W.2d at 733 (stating “once [the assignee] recorded the mortgage and the mortgagor’s de fault, the assignment of rents was valid and enforceable as between the mortgagor . . . and the mortgagee.”). Otis Elevator implies that this should be regarded as a transfer of all rights in the rents. 522 N.W.2d at 733 (finding that the assignor “no longer had an interest in the rents.”). A more recent decision of the Michigan Court of Appeals confirmed that the assignor loses “any right to colle ct the rents” afte r the assignee hasNo. 16-1812 In re Town Center Flats Page 7

perfected its rights following an event of default. Ashley Livonia A&P, L. L.C. v. Great Atl. & Pac. Tea Co., Inc. , No. 319288, 2015 WL 3757546, at *5 (Mic h. Ct. App. June 16, 2015) (per curiam). 1 We therefore predict, under Erie v. Tompkins , that the Michigan Supreme Court would treat a completed assignment of re nts as a transfer of ownership.
Town Center argues that the ti tle and language of the Michigan statute make it clear that only a security interest, not an ownership interest, is assigned under this law. (Appellant Br., App. R. 11, p. 28-29) Section 554.231 is titled “A ssignment of Rents to Accrue as Additional Mortgage Security” 2 and the body of the statute says “it shall be lawful to assign the rents . . . as security in addition to the property described in [the] mortgage.” Town Center would have us read the statute as expressing the Michigan legi slature’s intention to allow only transfers of security interests, and not ownership, based on its language authorizing assignments “as security in addition to the property.” Mich. Comp. Laws § 554.231. Town Center reasons that the statute allows only for a security interest in the assigned rents, so any attempt to transfer ownership of the rents is blocked by the default rule that an assignment of rents is unenforceable.
Language that the assignment is “as security,” however, doe s not foreclose an ownership transfer. For example, a deed of trust transf ers a deed—which is commonly thought of as an ownership transfer—to a trustee to hold as security for obligations associated with a mortgage on the property. See Sloman , 233 N.W. at 218-19 (discussing re spective rights of the mortgagor, trustee, and purchaser). And Michigan courts have consistently read § 554.231 as allowing for assignments of rents to be tran sfers of ownership once the stat utory steps for perfection have been completed. We follow their lead in inte rpreting the language of § 554.231 as allowing for ownership interests to be transferre d with an assignment of rents.
In the agreement at issue in this case, Town Center used broad language to “irrevocably, absolutely and unconditionally” tran sfer its right in a “present, absolute and executed assignment

1 The statute includes two additional steps regarding service of the notice of default and filing that notice, Mich. Comp. Laws §§ 554.231, 554.232, that are not at i ssue here because all five statutory steps were completed before the bankruptcy petition was filed.
2 Under Michigan law, “[a]n act’s title is not itself auth ority of any sort, but it is properly considered to assist in determining the act’s purpose and scope.” Cheboygan Sportsman Club v. Cheboygan Cty. Prosecuting Attorney , 858 N.W.2d 751, 756 (Mich. Ct. App. 2014).No. 16-1812 In re Town Center Flats Page 8

of the Rents and of the Leases” from the Town Ce nter property. The only fair reading of this language is that Town Center assigned the rent s to the maximum extent permitted by Michigan law. Because we hold that Mich. Comp. Laws § 554.231 allows for an ownership transfer in these circumstances, we find that Town Center did transfer owners hip in the assigned rents to ECP before the bankruptcy petition was filed in th is case. The broad language of the agreement
evidences an intention to transfer ownership.

2. Residual Rights of Assignor
Even with a transfer of ownership under § 554.231, Town Center ar gues that it retains some rights in the rents under Michigan law. If an assignor cures the default according to the agreement’s terms, then the assignor is able to start collecting rents again. See Sloman , 233 N.W. at 220 (noting, under the analogous 1925 stat ute, that “the purpose of the act is to put the [assignee] in the shoes of the [assignor] until the debt is paid .” (emphasis added)). Town Center reasons that if the rents from the prope rty are thought of as a stream of money, Town Center continues to hold a continge nt future interest in collecting those rents. The future interest
is realized if and when Town Center cures the de fault. On the other hand , if the rents are thought of as payments that oc cur during the discrete time period between the event of default and a (potential) future cure, then ECP has the sole interest in those payments and Town Center has no
interest in them. This holds true even if Town Center later cures the default. We find the latter conceptualization of a discrete period to be more aligned with the text of the statute. See Mich. Comp. Laws § 554.232 (creating right to assign “rents to accrue . . . during the period the mortgage is in effect”).
Town Center also points to a second residu al right: Michigan courts have created restrictions on how the assignee can us e rents collected under the law. In Smith , the court filled in the “obviously intended requirement that rent s collected by the [assignee] shall be applied on the mortgage debt.” 106 N.W.2d at 519 (quoting Sloman , 233 N.W. at 218). The court approved use of the collected rents to pay the debt, pr operty taxes, and insurance policy premiums. Id . at 517-18. Neither the Michigan Supreme Court nor the Michigan Court of Appeals has concluded
that these restrictions on the a ssignee’s use of rent money create a property right vested in the assignor. We decline to create a new rule of Michigan property law on this issu e, especiallyNo. 16-1812 In re Town Center Flats Page 9

because such a rule would conflict with la nguage used by Michigan appellate courts. See Otis
Elevator , 522 N.W.2d at 733 (concluding that the assi gnor “no longer had an interest in the rents”).
In summary, Michigan law treats a comple ted assignment of rents as a change of ownership and the assignor of t hose rents does not retain residua l property rights in the assigned

rents.

C. Scope of Bankruptcy Estates under the Federal Bankruptcy Code
Federal law determines the scope of the bankruptcy estate, which is broad. Demczyk v. Mut. Life Ins. Co. of New Yo rk (In re Graham Square, Inc.) , 126 F.3d 823, 831 (6th Cir. 1997). The Supreme Court has explained that “[b] oth the congressional goal of encouraging reorganizations and Congress’ ch oice of methods to protect s ecured creditors suggest that Congress intended a broad range of propert y to be included in the estate.” United States v. Whiting Pools, Inc. , 462 U.S. 198, 204 (1983). In Whiting Pools , personal property that had been seized by the Internal Revenue Service unde r a tax lien was determined to be part of the bankruptcy estate. Id . at 211. The Court found that the IRS had a secu red interest in the property, but that the debtor still retained an ownership interest un til sale to a bona fide purchaser
at a tax sale. Id . A broad definition of the bankruptcy esta te was in line with the congressional intent to allow Chapter 11 reorganization so “the business would continue to provide jobs, to satisfy creditors’ claims, and to produce a return for its owners.” Id . at 203 (quoting H.R. Rep. No. 95-595, p. 220 (1977)).
Despite the broad scope of Ch apter 11 bankruptcy estates, th e assigned rents in this case are not properly included in the Town Center estate. As di scussed above, Town Center does not retain ownership of the rents and does not hold residual property rights in t hose rents. Instead, the rents belong to ECP. Our holding is in line w ith the majority of bankruptcy court decisions
that have addressed this issue. In 1992, a bankruptcy court in th e Western District of Michigan held that assigned rents under Mich. Comp. La ws § 554.231 were not part of the bankruptcy estate because the debtor maintained only an inchoate right to future rents. In re Mount Pleasant Ltd. P’ship , 144 B.R. 727, 738 (Bankr. W.D. Mich. 1992). A recent decision from the EasternNo. 16-1812 In re Town Center Flats Page 10

District of Michigan agreed that assigned rent s are property of the assi gnee, not part of the bankruptcy estate. In re Madison Heights Grp., LLC , 506 B.R. 734, 744 (Bankr. E.D. Mich. 2014). A bankruptcy court in th e Southern District of Ne w York, interpreting § 554.231, reached a similar conclusion, finding the language in Otis Elevator to be especially persuasive. In re Woodmere Inv’rs Ltd. P’ship , 178 B.R. 346, 359-60 (Bankr. S.D.N.Y. 1995).
The bankruptcy court in this case relied on its own previous opinion that came to the opposite conclusion. In re Town Center Flats, LLC , 531 B.R. 176, 179 (Bankr. E.D. Mich. 2015) (citing In re Newberry Square, Inc., 175 B.R. 910 (Bankr. E.D. Mich. 1994)). These two decisions were motivated by a policy concern that excluding the assigned rents from the estate would effectively foreclose Chapter 11 relief for companies like Town Center that own a single property and receive their sole stream of revenue from rents of that property. Town Center , 531 B.R. at 181-82. We recognize the concern of Town Center—and the bankruptcy court—that single-asset real estate entitie s may have limited options under Ch apter 11 in this situation. Michigan law, however, is cl ear on the matter and governs de spite other policy concerns.

III. CONCLUSION
Mich. Comp. Laws § 554.231 allows for transfer s of ownership when an agreement to assign rents indicates an inten tion to do that, has been record ed, and default has occurred. Because Town Center does not have rights under Michigan law in the perfected assignment of rents here, those rents are not included in the bankruptcy estate. Accordingly, we reverse the order of the bankruptcy court.