Opinion ID: 181681
Heading Depth: 4
Heading Rank: 2

Heading: Pre-petition Possession of the Rents

Text: Bank of America’s second argument that the rents are not property of the estate is based on its assertion that it took pre-petition possession of the rents. Bank of America asserts that it took possession of the rents by sending notice to the tenants that they were to remit rents to Bank of America rather than Buttermilk Towne Center.3 The bankruptcy court held that even if Bank of America took pre-petition possession of the rents this action did not change the ownership of the rents. Thus, the rents remained property of the bankruptcy estate and were cash collateral. The Panel affirms the bankruptcy court’s conclusion in this regard. The case law cited by Bank of America only addresses perfection of a lien and priority of repayment under the Bankruptcy Code. Even if the assignment gave Bank of America a right to possess the rents pre-petition, the assignment, as explained above, did not give Bank of America an absolute ownership of the rents. Without an absolute right of ownership, mere possession cannot divest the debtor of its ownership interest, therefore the rents are property of the estate. See In re Willows of Coventry, Ltd., 154 B.R. 959, 965 (Bankr. N.D. Ind. 1993). The bankruptcy court found that the Assignment in question was not absolute, but rather was only a security assignment. Therefore, Buttermilk Towne Center had a remaining property interest in the rents subject to Bank of America’s lien. Accordingly, the bankruptcy court determined that the rents were indeed property of the estate. Additionally, the bankruptcy court held that Bank of America’s pre-petition conduct did not divest Buttermilk Towne Center of its property rights in the rents. The Panel affirms the bankruptcy court’s May 18, 2010 opinion and order.4 3 It is not clear what percentage of tenants actually did remit rents to Bank of America; however, this factual issue does not affect the Panel’s legal conclusions. 4 The Parties agree that if the rents are property of the bankruptcy estate, then they constitute cash collateral. 10