Bishop Estate is the fee simple owner and was the lessor of two lots of commercial real property located in Kaka'ako, Hawai'i (the Kaka'ako Properties). Bishop Estate leased each lot for a 40-year term. Bishop Estate had pledged the lots in a mortgage
to several different lenders and has defaulted on those loans. The lenders have stepped in and are collecting the rents from the two tenants. Bishop Estate objects because there has been no foreclosure. Can the lenders take the rents? Will the answer vary from state to state?
?The answer should focus on the issue of title vs. lien state and the rights of a mortgage lender when a property is in their possession - does the lender have the right to take back the property? In a lien state, no - there must be foreclosure. In a title state, the default means the lender has title and the right to take possession, including the right to collect rents. The distinction is a big one for lenders because lien states find the lenders standing by until the judicial foreclosure process takes place, often with the property deteriorating or unused. In title states, the lender can step in immediately and manage the property.
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