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- Distinction Between Assignment And Other Transfers
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An assignment is the transfer of a property right, title, or interest under an agreement to some particular person.[i] However, in In re Ashford , 73 B.R. 37, 39 (Bankr. N.D. Tex. 1987) every transfer of interest is not an assignment. It depends on the intention of the assignor.[ii] Therefore an assignment is different from other types of transfers like a sublease, a novation, or a subrogation.
Although the difference between a novation and an assignment is relatively narrow, it is an essential one.[iii] “Novation is a mechanism where one party transfers all its obligations and benefits under a contract to a third party.”[iv] In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.” In an assignment, the parties to the contract do not change and privity of contract still exists between the original parties. The consent of the third party contracting is not necessary in an assignment . [v]
A sublease is the transfer when a tenant retains some right of reentry onto the leased premises.[vi] However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment.[vii] Further, in a sublease, the original tenant is not released from the obligations of the original lease. However, in an assignment, both the assignee as well as the original tenant, is bound by the covenants of the original lease.[viii]
Subrogation is the substitution of one person for another.[ix] It is an equitable remedy where one person steps into the place of another and takes over the right to a claim for monetary damages to the extent that the other could have asserted it.[x] In contrast, an assignment is a formal transfer of property or property rights.
[ii] In re Ashford , 73 B.R. 37, 39 (Bankr. N.D. Tex. 1987)
[x] Jones Cooling & Heating, Inc. v. Booth , 99 N.C. App. 757, 759 (N.C. Ct. App. 1990)
Inside Distinction Between Assignment And Other Transfers
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Understanding the Assignment of Mortgages: What You Need To Know
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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.
Written by Attorney Todd Carney . Updated November 26, 2021
If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage.
No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.
Assignment of Mortgage – The Basics
When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.
Home Loan Documents
When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.
When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.
Using MERS To Track Transfers
Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.
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Assignment of Mortgage Requirements and Effects
The assignment of mortgage needs to include the following:
The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers.
The borrower’s name.
The mortgage loan’s original amount.
The date of the mortgage and when it was recorded.
Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.
The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.
When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.
Taxes and Insurance
If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.
If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.
In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change.
Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.
Attorney Todd Carney
Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney
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Don’t Confuse Change of Control and Assignment Terms
- September 11, 2020
- David Tollen
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An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.
Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)
Here’s an assignment clause:
Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.
As you can see, that clause says no assignment is allowed, with one exception:
- Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).
Consider the following additional issues for assignment clauses:
- Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
- Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
- Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
- All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.
Change of Control
Here’s a change of control clause:
Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)
- Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.
Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).
Consider the following additional issues for change of control clauses:
- Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
- No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
- Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.
Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon here , or purchase directly from its publisher, the American Bar Association, here.
Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team). David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.
© 2020, 2022 by Tech Contracts Academy, LLC. All rights reserved.
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One of the goals in a business divorce is finality – ending a business relationship once and for all. But what if the end isn’t really the end?
When members of limited liability companies (LLCs) sell their interests in the LLCs to a third party, they may assume that the sale provides the desired end of their rights and obligations related to the company. But that may not be the case. It is possible that even after selling and assigning an LLC interest, the assignor may continue to owe fiduciary duties to the LLC and its members. This post reviews some of the pitfalls of assigning an LLC interest and discusses strategies that may help to avoid those problems.
The Texas LLC Act – Provisions Governing Assignments of LLC Interests
Chapter 101 of the Texas Business Organizations Code (the “LLC Act”) governs LLCs. The LLC Act provides that a member of an LLC may transfer his or her membership interest to another party in whole or in part. But the assignment of an LLC interest is different from the transfer of membership in the company. The assignment of the LLC interest does not give the assignee the rights to (1) participate in the management and affairs of the company; (2) become a member of the company; or (3) exercise any rights of a member of the company. The assignment of the LLC interest provides the assignee with the right to receive distributions issued by the company and information about the company’s finances, but that’s about it.
The LLC Act spells out these rights of the assignee: “An assignor of a membership interest in a limited liability company continues to be a member of the company until the assignee becomes a member of the company.” Further, the assignor does not have the right under the LLC Act to withdraw as a member from the company. (An LLC member also cannot be expelled from the company.) The result is that even after assignors assign the LLC interest and are enjoying “life on the beach,” they may still owe fiduciary duties as a member of the company.
As a side note, this discussion has assumed that there are fiduciary duties owed within the LLC at issue. But that is not always the case. The LLC Act permits the members to agree in the company’s certificate of formation or operating agreement to modify or even eliminate all fiduciary duties that are owed to the company and its members by the managers of the LLC. Tex. Bus. Org. Code § 7.001(d)(3). While including such a provision would certainly make it safer for a member to assign an LLC interest, doing so poses its own set of risks while the company is operating.
A Case Study: Villareal v. Saenz
The problem of fiduciary duties persisting after an assignment may sound far-fetched, but it is a real concern. In Villareal v. Saenz , the co-owners of an LLC agreed to a business divorce in which Saenz assigned the entirety of his interest in the company to Villareal. 5:20-cv-571, 2021 WL 1986831, at *2 (W.D. Tex. May 18, 2021). The assignment was part of a broad release of claims, both known and unknown. Villareal later filed suit, alleging that before signing the release, Saenz had engaged in various acts of misconduct, including misappropriating company trade secrets and embezzling funds, and that after the release, Saenz had taken over the company’s web and email domain, pulled down the website, and offered to sell it back to Villareal for $7,000.
A magistrate judge in the Western District of Texas recommended that all claims based on alleged acts arising before the release should be dismissed for failure to state a claim. But the magistrate judge also recommended that the claims against Saenz based on actions that allegedly took place after the release – including those for breach of fiduciary duty – should proceed. The court concluded that Saenz had not demonstrated that his fiduciary duties ended when he assigned his interest in the company to Villareal, and he may have breached those fiduciary duties by maintaining dominion and control over the company’s email server and website.
Conclusion and Recommendations
The key takeaway from Villareal v. Saenz is that disputes between owners regarding the fiduciary duties that exist after an assignment can be avoided by more clearly wording the company agreement or assignment. The following are specific steps that potential assignors can take before their assign their LLC interests to another party:
First, assignors can make sure that the assignment provides an end to their membership in the company by agreement of all members, along with a mechanism set forth for the assignee to assume the membership interest.
Second, assignors can include an express written release and waiver of any post-assignment duties to the company or its members (fiduciary or otherwise). This should be signed by the company and all of its members to be certain it is effective.
Third, and most importantly, assignors can make sure at the outset, when forming the company, that the operating agreement provides a mechanism for transfer of the membership interest in connection with an assignment, specifying what happens to the member’s duties (fiduciary or otherwise) when the transfer takes place.
The bottom line is that when assignor is trying to exit the company, he or she does not want to have any continuing duties to the company. To ensure this takes place, the assignment documents and the terms of the LLC Agreement should confirm that these duties no longer exist after the assignment takes place.
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Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “ assignee .” This concept is used in both contract and property law. The term can refer to either the act of transfer or the rights /property/benefits being transferred.
Under contract law, assignment of a contract is both: (1) an assignment of rights; and (2) a delegation of duties , in the absence of evidence otherwise. For example, if A contracts with B to teach B guitar for $50, A can assign this contract to C. That is, this assignment is both: (1) an assignment of A’s rights under the contract to the $50; and (2) a delegation of A’s duty to teach guitar to C. In this example, A is both the “assignor” and the “delegee” who d elegates the duties to another (C), C is known as the “ obligor ” who must perform the obligations to the assignee , and B is the “ assignee ” who is owed duties and is liable to the “ obligor ”.
(1) Assignment of Rights/Duties Under Contract Law
There are a few notable rules regarding assignments under contract law. First, if an individual has not yet secured the contract to perform duties to another, he/she cannot assign his/her future right to an assignee . That is, if A has not yet contracted with B to teach B guitar, A cannot assign his/her rights to C. Second, rights cannot be assigned when they materially change the obligor ’s duty and rights. Third, the obligor can sue the assignee directly if the assignee does not pay him/her. Following the previous example, this means that C ( obligor ) can sue B ( assignee ) if C teaches guitar to B, but B does not pay C $50 in return.
(2) Delegation of Duties
If the promised performance requires a rare genius or skill, then the delegee cannot delegate it to the obligor. It can only be delegated if the promised performance is more commonplace. Further, an obligee can sue if the assignee does not perform. However, the delegee is secondarily liable unless there has been an express release of the delegee. That is, if B does want C to teach guitar but C refuses to, then B can sue C. If C still refuses to perform, then B can compel A to fulfill the duties under secondary liability.
Lastly, a related concept is novation , which is when a new obligor substitutes and releases an old obligor. If novation occurs, then the original obligor’s duties are wiped out. However, novation requires an original obligee’s consent .
Under property law, assignment typically arises in landlord-tenant situations. For example, A might be renting from landlord B but wants to another party (C) to take over the property. In this scenario, A might be able to choose between assigning and subleasing the property to C. If assigning , A would be giving C the entire balance of the term, with no reversion to anyone whereas if subleasing , A would be giving C for a limited period of the remaining term. Significantly, under assignment C would have privity of estate with the landlord while under a sublease, C would not.
[Last updated in May of 2020 by the Wex Definitions Team ]
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Debt Assignment: How They Work, Considerations and Benefits
Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.
Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.
Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.
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What Is Debt Assignment?
The term debt assignment refers to a transfer of debt , and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party, who then becomes the owner of the debt. In most cases, a debt assignment is issued to a debt collector who then assumes responsibility to collect the debt.
- Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector).
- The company assigning the debt may do so to improve its liquidity and/or to reduce its risk exposure.
- The debtor must be notified when a debt is assigned so they know who to make payments to and where to send them.
- Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law overseen by the Federal Trade Commission (FTC).
How Debt Assignments Work
When a creditor lends an individual or business money, it does so with the confidence that the capital it lends out—as well as the interest payments charged for the privilege—is repaid in a timely fashion. The lender , or the extender of credit , will wait to recoup all the money owed according to the conditions and timeframe laid out in the contract.
In certain circumstances, the lender may decide it no longer wants to be responsible for servicing the loan and opt to sell the debt to a third party instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor , the recipient of the loan, informing them that somebody else is now responsible for collecting any outstanding amount. This is referred to as a debt assignment.
The debtor must be notified when a debt is assigned to a third party so that they know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted. This could cause the debtor to unintentionally default.
When a debtor receives such a notice, it's also generally a good idea for them to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even want to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately notify the debtor and give them adequate time to respond.
The debtor still maintains the same legal rights and protections held with the original creditor after a debt assignment.
Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law overseen by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the time of day they can make contact, and the number of times they are allowed to call debtors.
If the FDCPA is violated, a debtor may be able to file suit against the debt collection company and the individual debt collector for damages and attorney fees within one year. The terms of the FDCPA are available for review on the FTC's website .
Benefits of Debt Assignment
There are several reasons why a creditor may decide to assign its debt to someone else. This option is often exercised to improve liquidity and/or to reduce risk exposure. A lender may be urgently in need of a quick injection of capital. Alternatively, it might have accumulated lots of high-risk loans and be wary that many of them could default . In cases like these, creditors may be willing to get rid of them swiftly for pennies on the dollar if it means improving their financial outlook and appeasing worried investors. At other times, the creditor may decide the debt is too old to waste its resources on collections, or selling or assigning it to a third party to pick up the collection activity. In these instances, a company would not assign their debt to a third party.
Criticism of Debt Assignment
The process of assigning debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of engaging in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they have also been charged with chasing up debts that have already been settled.
Federal Trade Commission. " Fair Debt Collection Practices Act ." Accessed June 29, 2021.
Federal Trade Commission. " Debt Collection FAQs ." Accessed June 29, 2021.
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Home » LLC Interest Transfer » Assignment and Transfer of Membership Interest
Assignment and Transfer of Membership Interest
Jeramie Fortenberry, J.D., LL.M.
An LLC owner (called a member ) can transfer an ownership interest (called a membership interest ) by complying with the transfer provisions within the LLC’s operating agreement and state law. An assignment is one of the key documents a member must prepare to officially transfer a membership interest to a transferee.
What is the Purpose of an LLC Interest Assignment?
An assignment—sometimes titled assignment and transfer or assignment and assumption —serves as a written record of a member’s transfer of an LLC interest to a transferee. It is comparable to a deed that transfers real estate, but an assignment instead transfers to a new owner (the assignee or transferee ) some or all of an LLC member’s ownership rights in the company. Like some deeds, an assignment may include the member’s guarantee that he or she actually owns the interest being transferred and has the right to transfer it.
An LLC interest assignment must comply with any transfer terms, conditions, or restrictions in the company’s operating agreement. For example, an operating agreement may require other members’ consent to the transfer or limit the ownership rights that members are allowed to transfer.
An LLC owner may also prepare an assignment when offering an ownership interest as security for a loan. In that situation, the lender is the assignee and usually claims the interest only if the member fails to repay the loan. Assignments of LLC interests pledged as collateral are subject to additional laws and are not the focus of this article.
What LLC Interests Do Assignments Transfer?
A member who creates an LLC assignment customizes the assignment to the precise ownership interest the member wishes to transfer. LLC ownership interests can generally be separated into two basic interests:
- Economic rights. A member’s economic rights (sometimes called transferable interest ) include the member’s allocation of the LLC’s profits and losses and the member’s right to receive distributions from the company.
- Membership rights. A member’s membership rights—which are typically defined in the operating agreement—include the member’s right to vote on important matters, participate in the LLC’s internal affairs, and join in the management of the company (if it is member-managed).
An assignment can transfer the member’s economic rights (in whole or in part)—in which case the transferee receives a right to LLC distributions but no right to vote on LLC matters. Or, an assignment can transfer the member’s entire interest in the company. A transfer of all membership rights typically requires other members’ approval, formal admittance of the transferee as a new member, and a separate joinder agreement under which the new member accepts the LLC’s operating agreement.
What Information is Included in an LLC Membership Assignment?
An assignment must identify the transferor and the transferee, the company, and the specific interest being transferred. It should state whether the transfer applies to all or part of the transferor’s interest and whether the transferee will receive all membership rights or an economic interest only.
Assignments often also include:
- A reference to the operating agreement’s authorization of the transfer;
- A statement that the transfer has been approved under the operating agreement’s approval standard; and
- The transferor’s warranty that he or she actually owns the interest and that the assignment does not breach any other agreements.
An assignment must be signed by the member who makes the transfer and—depending on its terms—may also be signed by the transferee and on behalf of the LLC.
Difference between Transfer and Assignment
19 Feb 2022 · 4 mins read
A single word may have more than one meanings. One might wonder how complex language is and how confusing words are. Transfer and assignment are such similar terms interchangeably used yet different in legal sense. The article discusses the meaning, types of assignment and how it is different from that of transfers.
In simple terms, assignment means the sale of IP i.e., the transfer of complete ownership to the assignee including the right to exclude others from infringing it. To constitute an assignment, the terms and conditions of contract under the Indian Contract Act, 1872. The agreement must be signed and written. The specific IP laws determine the features of such assignment in detail. In Copyright law partial assignment is also permitted under section 18, which requires to mention specifically the rights assigned. Also, it is necessary to mention the time period for which the assignment is made. In the absence of such time period, generally 5 years is taken as a limit. Assigner is the owner who assigns it to another person known as assignee.
Assignment is different from that of licensing in a way that the latter only parts with certain rights and the ownership rests with the person who is ready to give away the rights.
The following are some of the common types of assignment:-
Legal Assignment- When the transfer of existing registered IP is transferred, wherein the new owner acquires all rights, it is known as legal assignment.
- Equitable Assignment- It occurs when before the registration, the assigner is willing to transfer it to the assignee. Once the registration is done the assignee can acquire all the rights. Although the assignee cannot register himself as the proprietor but can show interest in the IP through a notice.
- Mortgage- It is the total or partial transfer of IP in return of a sum of money. Once the money is repaid, the IP is reinstated to its original owner.
On the other hand, transfer means to convey or remove from one person or place to another person. Transfer is of titles whereas the Assignment is for obligations and rights. 1
The term transfer is generally used for properties that can be possessed physically. For example, a car or house or those properties which can be represented by a legal instrument such as share
Assign is generally associated with intangible properties such as a debt, or benefits arising from contracts for example rental income under a lease agreement. 2
An assignment is thus different from other type of transfers such as subrogation, novation, sublease etc. Assignment is basically the transfer all rights, interests, titles which the assigner conveys to assignee and the latter stands in the shoes of the assigner. 3
Though the difference between novation and assignment is narrower, one ought to know the difference. “ Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party. ” 4
And for the transfer of the property, the Transfer of Property Act, 1882 applies. It extensively deals with various kinds of transfers. There are certain set rules for transfer of property. For instance, one needs to be of sound mind, not intoxicated, of legal age and must not be disqualified by law. The Act lists kinds of transfer such as lease, mortgage, exchange, gift and sale.
To sum up, though the words transfer and assignment is used interchangeably there is a difference between them. They are governed by different legislations and are used for different purposes. So one needs to be careful and understand all the legal provisions before transferring anything.
1 Difference between Assignment and transfer, UPCOUNSEL, (Nov 09, 2021, 5: 25 pm), https://www.upcounsel.com/difference-between-assignment-and-transfer . 2 Merchants Service Co. v. Small Claims Court, 35 Cal. 2d 109, 113-114 (Cal. 1950).. 3 Knott v. McDonald’s Corp., 985 F. Supp. 1222 (N.D. Cal. 1997). 4 Assignments: the basic law, STIMMEL LAW, (Nov 9, 2022, 5: 48 pm), https://www.stimmel-law.com/en/articles/assignments-basic-law .
Assignment of Interest In LLC: Everything You Need to Know
Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. 3 min read
Updated October 28, 2020:
Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. The assignment is usually done as a means for members to provide collateral for personal loans, settle debts, or leave the LLC. The member (assignor) and the person assigned (assignee) sign a document called the Membership Assignment of Interest.
Why a Member May Want to Assign Interest
A member may choose to assign interest for a number of reasons.
- The assignment of interest may happen as collateral to a loan to one of the members.
- Some members can assign interest to settle debts. The assignment will be effective until the debt is cleared.
- An assignment of interest can also' be done to a member's legal heirs , going into effect upon the death of a member.
The Rights and Limitations of the Assignee
The laws governing LLC membership interest assignments vary considerably from one state to another.
- Most states prohibit the assignee from participating in the LLC's operations or decisions unless the Articles of Organization have this provision.
- An assignee is protected from liability from the assignor until the assignee becomes a member in most states. However, the law in a few states, including California and Florida, states that the assignee does get the assignor's liability.
- Should the assignee become a member after the assignment, he is only entitled to the rights and restrictions the assignor had.
- The assignment usually gives the assignee the right to receive the assignor's share of the profits — but not necessarily the other rights.
The Rights and Limitations of the Assignor
- In many states, all LLC members have the right to assign membership interest.
- In most states, assigning interest does not necessarily lead to forfeiting of voting and management rights and can be temporary. Texas law, on the other hand, states that the assignor ceases to be a member of the LLC after the assignment.
The Rights and Limitations of Other Members
- All members of the LLC have to be notified of any type of assignment.
- Some states require the assignment of interest to be approved by all members.
- The new person who has been assigned interest does not necessarily become a member even if the assigner has decided to leave the LLC. The other members can decide whether to admit the assignee as a member or not. Should a member assign interest without the input of other members, the interest is normally limited to financial benefits.
- In a two-member LLC, one member can easily transfer the interest to the other.
The Membership Interest Assignment Document
The LLC's operating agreement should explain the rights of members on issues of transfer of interest, and the agreement should be followed during the assignment process. The Membership Interest Assignment acts as a record of the agreement, and the LLC normally keeps a copy of the document. The law in most states does not provide a formal template of the Membership Interest Assignment document but lists what should be included in the document. The document should have the following details:
- Percentage of interest that will go to the assignee
- Whether the assignee will have voting rights
- The signatures of the assignor and the assignee
Assignment of Interest Versus Selling Ownership Stake
The assignment of interest is typically different from selling the ownership stake . Selling a member's ownership stake in the LLC requires unanimous approval by the other members. A departing member may also assign his membership to another member.
If a member is being paid to transfer interest, this is treated for tax purposes as a sale, and the selling member's gains might be liable to capital gains tax. Even if a departing member is not paid for his interest, if the departure results in the assignee getting the departing members' share of liability, the departure is seen as an exchange or sale.
Assignment of Interest Versus Abandoning an LLC
If a member wants to withdraw interest in an LLC, he/she can choose to simply legally abandon the LLC in most states. The abandoning member should give some kind of notice to the other members explaining that he is abandoning membership. Abandoning membership does not usually require the approval of other members.
Abandoning an LLC does not absolve the member of liability he/she may have incurred when still a member.
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- LLC Membership Interest Transfer Agreement
- What Is the Definition of Assigns
- Assignment of Interest
- Assignment Law
- Assignment of Interest Form
- Assignment of Rights Example
- Assignment of Rights and Obligations Under a Contract
- Assignment Agreement Definition
- Legal Assignment
- Partial Assignment of Contract
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Assignments and Sub-Leases
Video-course: tenant’s duties - module 4 of 5, video-course: warranties and limits on sales contracts - module 3 of 5.
Assignments and subleases are terms for situations in which a tenant in possession of property transfers his or her right to possess that property to a third party. If the lessee transfers his or her entire remaining interest in the tenancy, then the transfer is known as an assignment. If the lessee transfers only part of his or her interest, then the transfer is known as a sublease. For example:
Barney leases Rubbleacre from Fred for two years, beginning January 1, 2013 and ending on December 31, 2014 at the rental price of $1,000 per month. On January 1, 2014, with one year remaining on the lease, Barney and Kazoo agree that Kazoo will occupy the land for the remainder of the lease, and that Kazoo will pay the $1,000 per month rent to Fred. In this case, Barney has “ assigned ” his lease to Kazoo. Barney leases Rubbleacre from Fred for two years, beginning January 1, 2013 and ending on December 31, 2014 at the rental price of $1,000 per month. On January 1, 2014, with one year remaining on the lease, Barney and Kazoo agree that Kazoo will occupy the land for the next six months and pay the rent for those months. At the end of six months, Barney will move back onto the land and finish out the remainder of the lease. In this case because Barney and Kazoo have agreed that Kazoo will assume less than the full remainder of the lease, Barney has “ sublet ” part of his interest in Rubbleacre to Kazoo.
See McClain Airlines, Inc. v. Republic Airlines, Inc. , 1991 U.S. App. LEXIS 18047 (1991) .
As a general principle, both assignments and subleases are allowed, and so any tenant can assign his or her lease to a third party or sublease his or her interest in the property to a third party at any time. However, as a practical matter, many lease agreements specifically prohibit assignments or subleases. Of course, any agreement between landlord and tenant that prohibits assignments or subleases is fully binding and enforceable.
The key issue to be discussed, then, is what affect the transfer of interest has on all the involved parties. Since there are several parties involved in these transactions, we will start by defining the parties. In an assignment, there is the landlord/ lessor (the property owner), the tenant/ assignor (the person who leased it from the landlord and then assigned his or her interest to a third party) and the assignee (the person who received the assignment). In a sublease, there is the landlord/ lessor, the tenant/ sublessor (the party who leased the property from the landlord but is now subleasing the property to a third party), and the sublessee.
As a further necessary introduction, there are two forms of relationship between every landlord and tenant. There is a contractual relationship that took effect and exists by virtue of the lease agreement itself. That relationship is known as “ privity of contract ”. In addition, there is a property ownership relationship, by virtue of their sharing of the ownership of the property. That relationship is known as “ privity of estate ”. “Privity of estate” exists between two parties when those two parties have successive ownerships in the same property (i.e., one holds a present interest while the other holds a future interest or they both hold future interests, one after another).
An assignment is a full transfer of the lease between the tenant and the assignee. Therefore, since the tenant no longer has any ownership interest in the property, there is no longer any relationship between the landlord and the tenant as far as the property ownership is concerned. Therefore, there is no longer “privity of estate” between the landlord and the tenant. On the other hand, there now is privity of estate between the landlord and the assignee. This is because the assignee now owns the present interest in the property. This present interest will end only at the end of the lease when it will go back to the landlord. Since the landlord’s right to possession is now successive to the possession of the assignee, the landlord and assignee are in privity of estate.
Privity of contract, on the other hand, still exists between the landlord and the tenant. This is because the original contract that existed between the landlord and the tenant is still fully valid even after the assignment. In other words, the landlord does not give up his or her right to enforce the lease agreement with the tenant just because the tenant transfers his or her interest to the third party. There is no privity of contract, of course, between the landlord and the assignee because those two parties never agreed to anything between themselves. For example:
Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy assigns her interest in Blackacre to Ricky. Ethel is in privity of estate with Ricky and not Lucy and in privity of contract with Lucy and not Ricky. Also note that Lucy and Ricky are in privity of contract (because they made an agreement with each other), but not in privity of estate (Lucy has no possession interest in Blackacre, and so she does not have an interest that either follows or is followed by Ricky’s interest).
The sublease is only a partial transfer of interest from the tenant to the sublessee. The tenant is transferring part of his or her interest in time to the sublessee. Therefore, there is no privity of contract or privity of estate between the landlord and the sublessee in a sublease. The reason that there is no privity of estate between the landlord and the sublessee is that the landlord’s right to possession of the property does not follow the sublessee’s right to possession. Instead, it still follows the tenant’s right of possession. The landlord is, however, still in both privity of estate and privity of contract with the tenant. Privity of contract is still applicable for the same reason as with the assignment (the landlord and the tenant agreed on the terms of the original lease). In addition, there is privity of estate between the landlord and the tenant because the right to possession of the landlord still follows the right of possession of the tenant. For example:
Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy subleases Blackacre to Ricky for one year. Ethel is not in privity of estate or privity of contract with Ricky because she did not make an agreement with Ricky and because her interest in possession of Blackacre does not follow Ricky’s (it follows the end of Lucy’s five year lease). On the other hand, Ethel and Lucy are in both privity of contract (because their agreement is still valid) and privity of estate (because Ethel’s interest follows the end of Lucy’s lease). Note that Lucy and Ricky are in both privity of estate and privity of contract. They are in privity of contract because they made an agreement with each other. They are in privity of estate because Lucy’s interest (in the remainder of her lease) follows Ricky’s interest (Lucy will get Blackacre at the end of Ricky’s one year sublease).
The ramifications of who is in privity of what with whom can be crystalized in a few rules:
- A party collecting rent (landlord from the tenant or tenant from assignee or sublessee) can collect rent from someone with whom he or she is in privity of contract or privity of estate.
- A party looking to enforce obligations of the landlord can only enforce those obligations against a party with whom he or she is in privity of estate.
- The contractual terms of the lease itself can only be enforced against a party with whom the party seeking to enforce the terms is in privity of contract.
1. Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy assigns her interest in Blackacre to Ricky.
- Ethel may collect rent from Ricky or Lucy.
- Lucy may not collect rent from Ricky.
- Ricky may enforce landlords’ obligations against Ethel, but not against Lucy. Lucy may not enforce landlords’ obligations against Ethel.
2. Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy subleases Blackacre to Ricky for one year.
- Ethel may collect rent from Lucy, only, not Ricky.
- Lucy may collect rent from Ricky.
- Ricky may enforce landlords’ obligations against Lucy, but not against Ethel.
- Lucy may enforce landlords’ obligations against Ethel.
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Assignments, Disclaimers and Powers of Appointment
Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.
First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death. An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest. Assignments create tax issues for both the assignor and assignee.
For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs. Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights. The assignment is then filed with the Court. Dad’s estate, less expenses and debts, is distributed entirely to the daughter.
If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s). There is no reassessment exclusion for any transfers between siblings.
Assignments, however, almost never apply to a beneficiary’s interests in a trust. Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution. The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors.
Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance. You cannot force someone to receive a gift or an inheritance. To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies. Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest. A disclaimer is not a gift by the person disclaiming. Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset.
The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift. We see who is then entitled to inherit.
For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation. The beneficiary survives and timely disclaims. The beneficiary’s living descendants would then inherit by right of representation.
Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use. A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate. The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors. Powers of appointment are used for a variety of estate planning reasons.
For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate. The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.
Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney. There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney.
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Assignment, novation or sub-participation of loans
Transfers of loan portfolios between lending institutions have always been commonplace in the financial market. A number of factors may come into play – some lenders may wish to lower their risks and proportion of bad debts in their balance sheets; some may undergo restructuring or divest their investment portfolios elsewhere, to name a few. The real estate market in particular has been affected by the announcement of the “three red lines” policy by the People’s Bank of China in 2020 which led to a surge of transfers, or attempted transfers, of non-performing loans. Other contributing factors include the continuous effects of the Sino-US trade war and the Covid-19 pandemic.
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Transferability of Loans
The legal analysis regarding the transferability of loans can be complex. The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld. Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations. Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples. It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans. This may be complicated further if there are multiple projects, facility lines or debtors. It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.
Methods of Transfer
The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.
A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan. The assignor is still required to perform any obligations under the loan documentation. Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor. However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.
Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee. The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations. This method of transfer does require the prior consent of the relevant debtor.
Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo. There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders. From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor. This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable. In any case, there would be no change to the balance sheet treatment of the existing lender.
Offshore Security Arrangements
The transfer of a loan in a cross-border transaction often involves an offshore security package. A potential purchaser will need to conduct due diligence on the risks relating to such security. From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved. Apart from transferability generally, the documents would reveal whether any consent is required. A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.
A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets. For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law. The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process. Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft. Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.
Due Diligence and Beyond
Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation. Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.
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