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Security assignments - not always what they say they are?

The nature of security created under a security document does not always match its description in the document. Charlotte Drake explains how this recharacterisation risk can apply to security assignments.

Is an "absolute" security assignment legal or equitable?

Legal assignments – key requirements

Lenders commonly take security over "choses in action" (such as debts or rights under contracts) by way of assignment. An assignment involves the transfer of either legal ownership (legal assignment) or equitable ownership (equitable assignment).

Section 136 of the Law of Property Act 1925 dictates the formalities for taking a legal assignment. It requires that a legal assignment must (among other things):

be in writing;
be executed by the assignor;
be "absolute";
not be expressed to be "by way of charge" only; and
be notified in writing to the person against whom the assignor could enforce the assigned rights (the third party).

Legal assignments by way of security

There has been much case law on what "absolute" means. An assignment will not be absolute if it is conditional, or of part of a debt. However, a security assignment can qualify (provided it is not "by way of charge"): the fact the assignor has an equity of redemption under a security assignment does not of itself prevent the assignment from being "absolute". Security assignments sometimes use the term "absolute" to make clear they are intended to be legal assignments. However, the terminology used is not decisive. An assignment will not be "absolute" unless the third party can then deal with the assignee alone in respect of the assigned rights. The assignee owes an obligation to the assignor to reassign the rights on discharge of the secured liability. But the third party can continue to deal with the assignee until it receives notice of that reassignment.

In practice, this usually presents a considerable stumbling block to taking security by way of a legal assignment. Security assignments often allow the assignor to continue to deal with the third party, which commercially suits assignor, assignee and third party alike. However, such an assignment will not be "absolute" and so will take effect in equity only, even if the security document claims to effect a legal assignment.

The recent case of Ardila Investments NV v. ENRC NV and another 1 highlighted this. The judge accepted that the assignment clause in the document used "the words of a legal assignment". However, he pointed to other clauses in the assignment document which suggested the parties had intended it to take effect in equity rather than law. One of these clauses obliged the assignor to "pursue its rights" under the assigned contracts, which is clearly inconsistent with an absolute assignment.

Legal or equitable – does it matter?

Often not. A notified equitable assignment has as strong a priority against other interests in the assigned rights as a legal assignment.

One advantage of a legal assignment is that a legal assignee can sue the third party without the assignor's involvement. Received wisdom used to be that an equitable assignee could not sue alone and the assignor (as owner of the legal interest) must be joined in as party to proceedings (either as co-plaintiff if willing, or as co-defendant if not).

In Ardila the judge held that the assignment took effect in equity and that both assignor and assignee should join in the proceedings as co-claimants. As it happened, when the hearing took place, the assignor had been joined as co-claimant anyway. In other cases, an equitable assignee has been able to sue the third party alone. As a purely practical matter, even if the assignor does need to be joined into proceedings this is unlikely to be more than an inconvenience.

Could a security assignment be "floating" security?

Could there be another, more unpalatable, result of control remaining with the assignor following a security assignment? In Re Spectrum Plus 2 , the House of Lords of course held that a charge over a debt will be floating, not fixed, if the security holder fails to exercise control over the debt proceeds. Is a security assignment of a debt or similar contractual right also at risk of being recharacterised in this way? This is far from a settled point, but these obiter comments from Lord Scott in Re Spectrum Plus (at paragraph 107) suggest so:

" Suppose, for example, a case where an express assignment of a specific debt by way of security were accompanied by a provision that reserved to the assignor the right, terminable by written notice from the assignee, to collect the debt and to use the proceeds for its (the assignor's) business purposes, ie, a right, terminable on notice, for the assignor to withdraw the proceeds of the debt from the security. This security would, in my opinion, be a floating security notwithstanding the express assignment. "

There is some logic in this approach. If it were possible to "solve" Re Spectrum Plus by renaming all charges over debts as security assignments, the case would not have taken on the significance that it has. The risk of this type of recharacterisation is most obvious in a UK insolvency, where there is a clear distinction between the application of fixed and floating recoveries. In this context, at least, the "fixed/floating" distinction is likely to be more of a concern to a lender than whether its security assignment is "legal" rather than "equitable".

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Out-Law Guide 10 min. read

Security in finance transactions

30 Aug 2011, 4:34 pm

When a borrower is granted a loan from a bank, the bank will often want security for the loan it makes.

Taking effective security over an asset means that the bank can, on the insolvency of the borrower, take possession of that asset, sell it and use the proceeds to repay the loan. This puts the bank in a stronger position than creditors who do not have security. Depending on the circumstances, the bank has the option of taking security over specific assets of the company or over all the assets of the company. If the bank chooses to do the latter a debenture will be used to create fixed and floating charges over all the property and assets of the company.

Under English law there are several types of security interest which are favoured by banks. This Guide will look at what these involve, along with their advantages and disadvantages.

Under a mortgage, ownership of an asset is transferred (by way of security for the loan) on the express or implied condition that it will be returned when the loan is repaid. What distinguishes a mortgage from an outright sale with a right of repurchase is that the transfer is only intended to secure the repayment of the debt. Transferring ownership enhances the lender's ability to sell the asset and receive cash in return if necessary, and prevents the borrower from disposing of the asset. A mortgage does not require the delivery of possession and so any kind of asset whether tangible (such as houses, ships or planes) or intangible (such as copyrights or patents) is capable of being mortgaged.

A mortgage can be legal or equitable. Under a legal mortgage, legal ownership of the property is transferred to the lender. An equitable mortgage is usually created where either a transaction does not meet the formal requirements of a legal mortgage but is recognised in equity (for example, a mortgage over property which the mortgagor does not yet own – a legal mortgage can only be created over property which exists at the time); or where the mortgage concerns property only recognised in equity (for example, an interest in a trust fund – a legal mortgage cannot be taken over property which is only recognised in equity).

Legal mortgage: This is the most secure and comprehensive form of security interest. As we have seen, it transfers ownership to the bank (the mortgagee) and so prevents the borrower (the mortgagor) from dealing with the mortgaged asset whilst it is subject to the mortgage. The formalities required for creating a legal mortgage depend on the type of property being secured, but include:

the creation of a legal mortgage over land, which must be done by deed;
a legal mortgage over debts or choses in action - rights under contracts – which is created by an absolute assignment, in writing, by the assignor which is not intended to be by way of charge. Written notice of this assignment must be given to the debtor, trustee or other person from whom the assignor would have been entitled to claim the debt or choses in action;
legal mortgages over chattels – personal property – which do not generally require any formalities to make them effective providing that there is a valid agreement and the intention to create a legal mortgage;
a legal mortgage over registered securities which is created by transferring those securities into the name of the mortgagee by novation – in essence, a new contract. The mortgagee should be registered as the new holder of those securities;
a legal mortgage of registrable intellectual property rights, which is created by entry of the details of the mortgage into the relevant register.

A legal mortgage transfers ownership of the asset to the mortgagee so it cannot be sold to a third party without the mortgage being released and ownership being transferred back to the mortgagor. Alternatively the purchaser can agree to acquire the property subject to the existing mortgage, which is unusual.

Equitable mortgage: An equitable mortgage only transfers a beneficial interest in the asset to the mortgagee, with full legal ownership remaining with the mortgagor. In general, an equitable mortgage will arise where one of the following applies:

the formalities necessary to create a legal mortgage have not been complied with;
the mortgagor's interest in the asset being mortgaged is an equitable interest;
the parties have merely entered into an agreement to create a legal mortgage in the future over the asset in question, rather than formally creating such a mortgage;
the property to be mortgaged is recognised only in equity - for example, an interest in a trust fund.

Equitable mortgages and charges can be taken in a number of ways, some of which offer very little protection against third parties obtaining an interest in the charged asset and can make enforcement over the charged asset very difficult. It is preferable to take a legal mortgage or charge wherever possible.

The term 'charge' is often used as a generic term for all types of security interest, but specifically it represents an agreement between a creditor and a debtor in which a particular asset or class of assets can be used to satisfy a debt. A charge creates an encumbrance or interest which attaches to the asset and travels with it into the hands of any third parties. The only exception to this is a genuine, arms-length purchaser of the full legal ownership for value and without notice, who will acquire the asset free of the charge.

A charge does not involve the transfer of ownership or possession of an asset. For practical reasons most lenders will not want to take possession of the borrower's assets and nor will the borrower want to lose control of them, especially if those assets are used in the day-to-day running of the business. Accordingly a lender (chargee) will instead want to take security by obtaining rights over specific assets of the borrower (chargor) as security for the loan. The chargee then has a right to resort to that asset to repay the debt.

Charges can either be fixed or floating. The nature of a charge (whether fixed or floating) is particularly important if the borrower becomes insolvent. Under a fixed charge an asset which is ascertained and definite, or capable of being ascertained and defined, can be used to satisfy a debt immediately or once the lender acquires an interest in it.

A floating charge, on the other hand, hangs over a class of assets or future assets and acts as a deferred right to use those assets to satisfy a debt. Until an event occurs which causes the floating charge to fix to those assets, the borrower is free to dispose of and add to the assets in the ordinary course of its business. When the event occurs and the floating charge becomes fixed, it attaches to the assets that make up that class at that point.

It should be noted that the label attached to the charge is not conclusive in determining whether it will be regarded by a court as fixed or floating. To be confident that a court will regard a charge over assets as fixed, the lender must demonstrate that it has exercised control over the charged assets to the extent that the charge does not 'float' over the assets but is fixed to them. In practice, this means implementing clear restrictions on the ability of the borrower to deal with the assets and enforcing those restrictions.

Fixed charges

Fixed charges attach immediately to the charged asset, providing that the asset is or is capable of being ascertained and definite. They can be granted by anyone including companies, limited liability partnerships (LLPs), traditional partnerships and individuals.

The key characteristic of a fixed charge is that it gives the lender control over the charged asset. This control is crucial to the nature of a fixed charge - without sufficient control, the charge will be deemed to be floating. Typically, a document which creates a fixed charge will give the lender the right to:

prevent the borrower from disposing of, or otherwise dealing with, the asset without the lender's consent;
sell the asset if the borrower defaults under the loan;
require the borrower to maintain the value of the asset while it remains in the borrower's possession; and
claim the proceeds of the sale of the charged asset in priority to other creditors.

The charge document should ensure that the charged assets are identified as precisely as possible.

Fixed charges have a number of important advantages over floating charges:

a floating charge given by an insolvent company within the 12 months before the onset of insolvency (two years if the chargee is a 'connected person' with an interest in the chargor) is void except to the extent that the insolvent company has acquired new assets since the security was granted;
a floating charge ranks behind the rights of preferential creditors if the company goes into administration, receivership or liquidation, while a fixed charge takes priority over all unsecured claims, preferential or otherwise;
the sale of, or any encumbrance or burden created over, an asset which is subject to a floating charge will as a general rule take effect free from that charge, while a fixed charge can only be defeated if the asset is sold to a genuine, arm's length purchaser of the legal title of that asset for value without notice;
many foreign legal systems, particularly civil law jurisdictions such as those in Europe, do not recognise floating charges;
all floating charges given by a company need to be registered at Companies House, otherwise they cannot be forced against the liquidator, administrator or any creditor of the company. A fixed charge is only registrable if taken over a class of asset specifically listed in the Companies Act.

Floating charges

Floating charges, as the name suggests, hover above a shifting pool of assets. While fixed charges can be created by anyone, floating charges can only be created by companies, LLPs and, under the Agricultural Credits Act, farmers. Individuals cannot grant floating charges over their assets.

A floating charge has the following characteristics:

it is a charge on a class of assets, present and future, of a company;
that class is one which, in the ordinary course of the company's business, would change from time to time;
it is understood that, until some future step is taken by or on behalf of the chargee, the company may carry on its day to day business as far as it concerns that particular class of assets.

Unlike assets secured by a fixed charge, the assets secured by a floating charge are described in very general terms – for example, the borrower's 'trading stock' or its 'undertaking and assets'. This group of assets may fluctuate from time to time either through the borrower disposing of them in its ordinary course of business or by it acquiring further assets in that class after the floating charge was created. This flexibility is the great advantage of a floating charge, but the freedom to deal with assets presents the lender with the problem of how to stop the borrower from disposing of all of those assets. For this reason, lenders prefer to take fixed charges over specific assets where possible. Lenders do have limited ability to control floating charge assets in some circumstances – a floating asset will fasten onto the charged assets which are in existence when a certain event occurs, either by operation of law or by agreement of the parties, which fixes the charge. At that point, the floating charge stops hovering over the pool of assets and instead becomes fixed to those assets which exist at that time.

Despite the inherent weaknesses of a floating charge, it is usually important for a lender to take a floating charge wherever possible. A floating charge has three important advantages:

it allows the bank to take security without unduly restricting or affecting the borrower's ability to carry on its business, including the buying and selling of assets;
providing the charge is a 'qualifying floating charge' for the purposes of the Insolvency Act, the holder will be able to appoint an administrator without applying to court for an order;
it acts as a catch-all, sweeping up intangible assets which cannot be specifically charged or assets which the lender is unaware of.

Banks will usually get the best of both worlds by using a combination of fixed and floating charges in one document, known as a debenture. This document usually creates fixed charges over certain assets of the company – land, plant and machinery, goodwill, uncalled capital, intellectual property rights, book debts, non-trading account bank balances – and a floating charge over all the other assets. By using this combination a bank can obtain adequate security for its loan, safe in the knowledge that all the borrower's key assets apart from stock in trade are subject to fixed charges. At the same time the company is free to carry on its business in a relatively unhindered manner, and can sell its stock in trade in the ordinary course of business without having to obtain the bank's consent for every sale.

Assignment by way of security

A borrower's rights against third parties, such as the right to receive payment for debts on its own books, can be assigned to a third party as a way of selling those rights – this is an absolute, or direct, assignment. It is also possible to carry out an assignment by way of security over a borrower's choses in action – rights the borrower is entitled to under contracts – as security for that borrower's debts. As with any assignment, an assignment by way of security can be either legal or equitable. An assignment will be legal if it is:

in writing and executed by the borrower (the assignor);
absolute - that is, unconditional and for the whole amount; and
notified in writing to the person against whom the assignor could enforce those assigned rights, usually the debtor of the borrower company.

As a result, a legal assignment should be expressed as an absolute assignment with a provision that those rights will be reassigned once the relevant debt is satisfied. If, however, an assignment is made 'by way of charge' rather than by way of security then it will take effect in equity only.

A legal assignment can only assign debts which already exist. Only an equitable assignment can assign rights under future contracts.

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Security Assignments – Not Always What They Say They Are?

Contributor.

Is an "absolute" security assignment legal or equitable?

Legal assignments – key requirements.

Section 136 of the Law of Property Act 1925 dictates the formalities for taking a legal assignment. It requires that a legal assignment must (among other things):

be in writing;
be executed by the assignor;
be "absolute";
not be expressed to be "by way of charge" only; and
be notified in writing to the person against whom the assignor could enforce the assigned rights (the third party).

Legal assignments by way of security

Legal or equitable – does it matter?

Often not. A notified equitable assignment has as strong a priority against other interests in the assigned rights as a legal assignment.

Could a security assignment be "floating" security?

1. [2015] EWHC 1667 (Comm) (11 June 2015)

2. [2005] UKHL 41.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Life Insurance
Definitions

What Is a Collateral Assignment of Life Insurance?

absolute assignment vs security assignment

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
The collateral assignment helps you avoid naming a lender as a beneficiary.
The collateral assignment may be against all or part of the policy's value.
If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

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Absolute Assignment of Life Insurance Policies

An absolute assignment transfers all ownership rights of a life insurance policy.

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1. What Is the Assignment of Insurance Benefits?
2. What Is a Life Insurance Assignment?
3. Does Life Insurance Count Towards the Two Million for Federal Estate Tax?

An absolute assignment of a life insurance policy involves transferring all rights and ownership decisions to another party. You could have one of several reasons for wanting to do this; for example, using the policy as collateral for a loan, or making a donation to your favorite charity at death. Making an absolute assignment is relatively simple as long as your life insurance policy allows it.

How Transfer of Ownership Works

Absolute assignment is akin to a transfer of ownership, in that you are giving all ownership rights to another party. Although you remain the insured under the contract, the new party can change the beneficiary (usually to itself), it can make decisions about investment options of a whole-life policy, and it can take any other action that does not jeopardize the policy's in-force status. You remain responsible for the premium payments, and you could be in breach of the assignment provisions if you don't pay them.

Collateral Loan Bank Assignment

Absolute assignment of life insurance is often done when a person applies for a loan. If the bank is concerned that the loan might not be repaid if you died, if might require a life policy with an absolute assignment to the bank. The bank names itself the beneficiary of the policy up to the amount of the loan balance. Any residual death benefit would go to your named beneficiary.

Financing a Charitable Gift

Another use of absolute assignment is to make a charitable gift. This approach is gaining in popularity.

Life insurance is often purchased to finance a charitable donation by the estate of a deceased individual. One drawback to this approach is that the entire gift goes through the estate and might incur probate delays and fees.

The use of an absolute assignment streamlines the process, as the charity can name itself the beneficiary of the policy. The charity can issue you a tax receipt for every premium, which you can deduct as a charitable contribution.

Absolute Assignment Legal Considerations

Insurance companies freely provide assignment forms that are straightforward and easy to fill out. Once an assignment is complete, a copy of the form should be filed with the insurance company.

The life insurance company may withhold part of its payout to any beneficiary -- including a newly designated one -- if a premium hasn't been fully paid, or because of other indebtedness. That might have legal ramifications for you and the assignee, in which the insurance company will take no part.

Standard Life Insurance Co. of New York: Absolute Assignment Form
Waypoint Partners: Assigning Your Life Insurance Policy
Collateral Assignment Agreement

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

What is the assignment of insurance benefits, what is a life insurance assignment, does life insurance count towards the two million for federal estate tax, what happens to homeowner's insurance when a person dies, what is the collateral assignment of a life insurance policy, borrowing as a beneficiary from an irrevocable life insurance trust, how to change the maturity date on whole life insurance policy, can you change the owner of a nonqualified annuity, how to cancel an irrevocable trust life insurance policy, how do i set up a trust fund with a life insurance policy, tax consequences of changing beneficiaries on a life insurance policy, how much can i borrow against cash value.

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Legal Framework of Equitable Assignments in Finance

Financiers and lessors often take an assignment over debts or certain rights under contracts as part of their security package. Depending on how this is done, an assignment can either be characterised as a legal or equitable assignment under English law. Stephenson Harwood’s Dipesh Bharania explains

A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in its own name against the debtor for payment of the debt owed, or to enforce rights in the contract.

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A legal assignee has this right, but there is a question over whether an equitable assignee has this right or not.

In the case of General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 Ch, the High Court held that the beneficiary of an equitable assignment did not have the right to bring proceedings in its own name, and had to do so jointly with the assignor which had assigned rights in the underlying contract.

This raises questions about the equitable assignment, as it appears to contradict other judgments which permit an equitable assignee to take proceedings in its own name. The predecessor company of General Nutrition Investment Company (GNIC) entered into a trade mark licence agreement in March 2003 with Holland and Barrett (H&B) allowing H&B to use certain trademarks in the UK.

After complex internal restructuring, the original contracting party had been dissolved and GNIC was the successor company, which as assignee had been assigned both the rights under the original trademark licence agreement, and the rights to the trademarks themselves. GNIC alleged that H&B was in breach of the licence agreement and served a number of notices of termination on H&B purporting to terminate the agreement.

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The court had to decide whether any of these notices of termination were effective, and whether GNIC had the right to serve such notices, and bring and maintain proceedings against H&B in its own name.

The formalities for a legal assignment are set out in Section 136 of the Law of Property Act 1925, including that the assignment must be:

In writing and executed by the assignor “Absolute” and unconditional, Not be expressed to be “by way of charge”, and Notified in writing to the person against whom the assignor could enforce the assigned rights – usually the other contracting party.

It can often suit the assignor, the assignee and the third party to allow the assignor to deal with the third party, for notice not to be given (certainly initially) and the assignee to remain a silent party. This method is frequently used in financing documents, with notice only being given at a later date (rather than at the time of assignment) when there is a possibility of enforcement on the horizon.

An equitable assignment tends to be created when an assignment does not meet one or more of the requirements for a legal assignment. The main differences between a legal and an equitable assignment are priority (and the established principle that the assignee who serves notice first takes priority over any other assignee (where notice is not given)) and an equitable assignee needing to join the assignor as a party in any legal proceedings it brings against the third-party debtor.

However, two recent cases have lessened the distinction in practice between the two. In the Bexhill case the Court of Appeal recognised that an equitable assignee could take action in its own name without joining in the assignor. In the Ardila case, where notice had been given to the contracting party, the High Court looked at the terms of the notice and decided that what had seemed to be a legal assignment was in fact an equitable assignment because the wording of the notice seemed to retain rights for the assignor. The court used this reasoning to declare it an equitable assignment, despite the notice having been given as required.

Returning to the case in point, after the internal reorganisation and subsequent assignment of the trade mark licence agreement to GNIC, no notices of such assignment were served on H&B by the assignor prior to the purported termination of the agreement or the issue of proceedings. GNIC maintained that as it took the place of its predecessor as the “Licensor”, it became the body entitled to exercise rights of termination under the agreement. H&B’s contention was that, as an equitable assignee, GNIC did not have the right to terminate the agreement or bring proceedings in its own name.

It is widely accepted that, until a notice of assignment is given, and (i) the third party can validly discharge its obligations under the contract to the assignor, and (ii) the third party may raise against the assignee any defence or set-off which he could have raised against the assignor (provided that the matter on which the defence is based arose before notice was received) and the contracting party and assignor can amend the terms of the contract without the assignee’s consent.

The High Court considered that previous case law on this issue was binding as it had not been overruled or materially distinguished in any subsequent cases heard, and held that notice to the contracting third party is necessary to perfect the right of the assignee. Additional weight was given to the fact that a substantive contractual right (in this case, the right to terminate the licence agreement) had been assigned rather than just the assignment of a debt. Consequently, the contractual relationship between the parties was seeking to be amended and therefore the third party was entitled to see that such change was being effected by a party which had the right to do so and whom it knew to have such rights. The Court maintained that H&B cannot be expected to accept a notice of termination from an entity which turns out to be an assignee when it had never been given notice of that assignment.

While the High Court accepted that this decision may be appealed, this has raised a question about equitable assignments and the rights of the equitable assignee under English law. In the meantime, in practice, parties will have to scrutinise what type of right they are seeking, whether in security or as a full legal assignment and opt for the method which provides the clearest outcome possible as the law stands when they take the assignment. Anyone taking an assignment of the benefit of a contract should clearly ensure that notice is served on the other contracting party if it wants to be sure it can act in its own name under that contract against the other contracting party if need be.

Otherwise, there is a risk that an equitable assignee will be unable to enforce substantive contractual rights without having to join in the assignor in proceedings. That said, it may still be commercially preferable to have an equitable assignment for particular financing and leasing structures where it is not thought difficult to join the assignor at a later date if need be. In this case it was not possible, as the assignor had been dissolved. Advice should be sought about the type of assignment to be taken in each transaction pending further clarification from the courts.

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As economic conditions force greater numbers of commercial real estate deals into distress situations, issues relating the respective rights of borrower’s and lender’s to control and use rents also increase. Control and use of cash flow generated by commercial real estate properties is central to any workout, restructure or enforcement activity.

In documenting commercial mortgage loans, lenders routinely take assignments of rents through the terms of the mortgage or by a separate assignment, or both. Lenders have long sought to characterize these assignments as being an absolute rather than merely collateral in nature. Under these absolute assignments, borrowers are granted a revocable license to collect and use rents, which is subject to termination upon default. Under this construct lenders can characterize borrower’s interests in rent as being contingent prior to termination of the so-called license back, and non-existent after termination.

In bankruptcy, this construct can be crucial in determining whether rents are part of the debtor’s bankruptcy estate. A court upholding the validity of an absolute assignment of rents allows the lender to assert ownership and control cash, and limits a debtor’s ability to reorganize. Conversely, courts that view absolute assignments as really collateral assignments, require lender’s to engage in some extensive enforcement activities to secure control of the rental stream.

A split of authority persists among states regarding the treatment of rents subject to an absolute assignment of rents in bankruptcy. Given that the borrower still retains a contingent interest in rents subject to an absolute assignment to the extent the debt is ever paid off, some states hold that they are better considered part of the borrower’s bankruptcy estate. Connecticut and Massachusetts are two such states. In Cavros v. Fleet National Bank, the U.S. Bankruptcy Court for the District of Connecticut held that an assignment of rents purporting to convey “the entire lessor’s right, title and interests in” all rents was in substance a mortgage because the borrower retained the power to divest the lender’s interest through satisfaction of the mortgage debt. The court held that this “equitable title” or “equity of redemption” persisted until extinguished in a foreclosure action. Given the borrower’s continuing interest in the rents, the court held that they were part of the borrower’s bankruptcy estate. In Lyons v. Federal Savings Bank, the U.S. Bankruptcy Court for the District of Massachusetts similarly held that an assignment of rents purporting to “unconditionally” assign all rents constituted additional security, rather than absolute title, because the assignment was made conditional on the borrower’s default and would terminate upon payment of the debt.

By contrast, New York and Vermont have recognized that an absolute assignment of rents can convey full title and accordingly have not included such rents in the borrower’s bankruptcy estate. In In re Loco Realty Corp., the U.S. Bankruptcy Court for the Southern District of New York looked strictly at the language of the assignment which purported to “absolutely and unconditionally” assign all right, title and interest in all rents. Although the court acknowledged that the borrower had “an interest in the rents to the extent the mortgage is ever satisfied”, it held that until such time, the rents were not the borrower’s property and were not to be included the borrower’s bankruptcy estate. In In re Galvin, the U.S. Bankruptcy Court for the District of Vermont also looked to the language of the assignment and determined that it conveyed absolute title to lender and therefore that the rents were not part of the borrower’s bankruptcy estate. Although the agreement provided that the rents were “additional security”, it also evidenced an “intent . . . to establish an absolute transfer and assignment”, which the court found more persuasive.

Although treatments of assignment of rent in bankruptcy varies state to state, mortgage lenders are still well advised to use the construct of an absolute assignment with a license back in documenting their transactions.

LESSON 3: LIFE INSURANCE POLICIES, PROVISIONS, OPTIONS AND RIDERS

3.9.9 assignment provision - absolute and collateral.

Since the policyowner actually owns the policy, not the insurer, the owner has every right to give the policy away just like any other owned piece of property; the insurer's permission is not required. The transfer of ownership is referred to as assignment and the new owner is the assignee .

If the policy is transferred under an absolute assignment , the transfer is irrevocable and the assignee receives full control of the policy. As long as the beneficiary was not designated as an irrevocable, the assignee can even change the beneficiary without the beneficiary's permission.

If the policy is transferred as a means of establishing security on a debt, it is considered a collateral assignment . If the insured dies before the debt is repaid, the balance of the debt is paid to the creditor out of the policy proceeds. If there are any funds left once the debt has been satisfied, the rest of the proceeds go to the policy's beneficiary.

A policyowner has assigned a $10,000 policy to cover a $5,000 mortgage. How will the company pay the claim at the insured's death?

If an absolute assignment was made, the company will pay the entire proceeds to the assignee. If a collateral assignment was made, the company will usually make the check payable jointly to the assignee and the beneficiary. If a partial assignment was made, the unpaid mortgage balance will be paid to the assignee and the remainder will be paid to the beneficiary named in the policy.

Helpful Hint

Assignment by way of security

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: Click to expand:

— or just get in touch: for ½ a weekly 🍺 you get to JC. .

Not hitherto commonly known as an ABWOS even though it jolly well ought to be.

There’s quite a bit more over at set-off and even more than that at netting , and some stuff at equitable set-off , too. Unless that’s just a redirect to set-off .

Unless it is “by way of security” in name only — don’t ask, but if you must, see the footnote [1] — an assignment by way of security , usually, does not meet all the formal requirements for a legal assignment set out in the Law of Property Act . So it’s not as good. Being, therefore, an equitable assignment and not a legal assignment , there differences relating to how an assignee enforces its claim against contracting party: a legal assignee can sue in its own name; and equitable assignee only by joining the assignor to the action (I know: shoot me, right?).

Do I need an assignment by way of security if I have a charge ?

Not unless you’re the sort of person who wears two pairs of underpants in case the first fails. [2] Both are equitable interests , but a fixed charge is more formal. The problem with a fixed charge is that it requires control over the asset (an actual thing) being charged: that is easy enough if you can take possession of it (prime brokers: hooray!), but if you can’t - if it is some vague right the debtor has to be paid money at a later date - then your fixed charge might wind up looking a bit like a floating charge, which means you may wind up behind other people in the queue.

=== Assignment and its effect on Netting and Set-off === Could a right to assign by way of security upset close-out netting such that one should forbid parties making assignments by way of security of their rights under a master netting agreement (such as an ISDA Master Agreement or a 2010 GMSLA ), for fear of undermining your carefully organised netting opinions?

Generally : No .

An assignment by way of security is a preferred claim in the assignor’s insolvency over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of subrogation of the assignor’s claim, should the assignor have imploded in the meantime or something.
“ Nemo dat quod non habet ”: [3] the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a single agreement , on termination of the agreement the assignee’s claim is to the termination amount determined under the Agreement, which involves terminating all transactions and determining the aggregate mark-to-market and applying close-out netting . No one can give what they do not have. [4]
The assignee can be in no better position than the assignor and this takes subject to any set-off . The conduct of the debtor vis a vis the assignee is irrelevant, unless it gives rise to an estoppel. See Bibby Factors Northwest Ltd v HFD Ltd (paragraphs 38 and 48). [5]

At the point of closeout, the assignee’s right is to any termination payment payable to the Counterparty. Therefore any assignment of rights is logically subject to the netting, as opposed to potentially destructive of it.

But : This is only true insofar as your netting agreement does not actively do something crazy, like disapplying netting of receivables which have been subject to an assignment and dividing these amounts off as "excluded termination amounts not subject to netting".

I know what you are thinking. "But why on God’s green earth would anyone do that?" This is a question you might pose to the FIA ’s crack drafting squad ™, who confabulated the FIA ’s Professional Client Agreement , which does exactly that.

Lex situs for a chose in action like an assignment by way of security

Where the thing you are taking security over is a disembodied legal right — a “ chose in action ” and not a “ chose in possession ” — then what is the lex situs, seeing as this thing floats free of the ghastly, rusting mortal world of territorial boundaries? It is a Platonic right, and ethereal, idealised, utopian thing and as such as stateless, existing as it does on another plane, in another geometry, that that of tawdry earthly things like regulatory perimeters.

Here the lex situs is — in the absence of any other worldly place for it — the governing law of the right being assigned.

Close-out netting
Law of Property Act 1925
↑ An assignment by way of security could be a legal assignment, if it meets the formal criteria, but one of those is that the assignment is absolute and not by way of security only, so — yeah. And there is authority about this, by the way: Mailbox (Birmingham) Limited v Galliford Try Construction Limited [2017] EWHC 67.
↑ “That old man, despite all the hardships, still manages to put on a clean pair of underpants every day. And, you know? By the end of the week, he can’t get his trousers on.”—From There’s no land like Poland , by the Not The Nine O’Clock News team.
↑ “A chap cannot give away what he doesn’t own in the first place.” Of course, try telling that to a prime brokerage lawyer, or a counterparty to a 1994 NY CSA .
↑ Except under New York law — isn’t that right, rehypothecation freaks?
↑ Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCACiv 1908
Taking security

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Welcome Funds has compiled every term, phrase & definition related to life settlements. Have more questions? Call us toll-free at 877.227.4484 or complete our Quick Life Settlement Qualifier to determine your eligibility.

The Life Settlement Option

WHAT IS ABSOLUTE ASSIGNMENT?

Absolute Assignment is a legal instrument that allows the owner of a life insurance policy or other valuable assets to transfer all rights and ownership of the asset to a designated assignee. This transfer of ownership is comprehensive and unrestricted, giving the assignee complete control and authority over the asset. Unlike conditional assignment, which may have specific conditions attached, absolute assignment represents an unqualified transfer of ownership..

Absolute assignment can be used not only in the context of life insurance but also for transferring ownership of other valuable assets such as real estate and securities. It involves a meticulous adherence to legal requirements and procedural details to ensure the validity and legality of the ownership transfer. Seeking guidance from legal and financial experts is essential to ensure a smooth and legally sound execution of the absolute assignment process.

Exploring Life Settlements

When considering selling a life insurance policy, individuals have the option to engage in a life settlement, wherein the policy is sold to institutional buyers in the secondary market. This process involves applying to various licensed buyers who compete to offer the highest bid for the policy. An experienced life settlement broker can facilitate this auction-style bid process, ensuring that policy owners receive the best possible offer for their policies.

Welcome Funds: Your Life Settlement Partner

Welcome Funds is a nationally licensed life settlement broker that specializes in representing policy owners in the secondary market for life insurance. They engage in an auction bidding process to secure the highest offer from institutional buyers, providing professional representation and expert counsel throughout the sale of the life insurance policy.

Explore Your Options with a Life Settlement Qualification Process

To explore the eligibility of a life insurance policy for a potential life settlement, individuals can embark on a cost-free and commitment-free journey by engaging in the Life Settlement Qualification Process. This process includes a complimentary personal consultation & appraisal, during which confidentiality is safeguarded. Interested individuals can complete a Quick Life Settlement Qualifier online or call a toll-free number to connect with a dedicated client care advocate.

Overall, the combination of absolute assignment and the life settlement process provides individuals with a means to transfer ownership of valuable assets and explore options for selling their life insurance policies in a competitive market.

Ready to Explore Your Options?

Complete our quick Life Settlement Qualifier or call us toll-free at 877.227.4484 to speak with a client care advocate.

LIFE SETTLEMENT BLOG

who does a life settlement broker represent

Direct Life Settlement Buyers vs. Welcome Funds – Advisor Beware!

Posted: by John Welcom

Welcome Funds has the privilege of working with numerous financial advisors and wealth managers – and have done so for two decades – some who exclusively focus on servicing high net worth clients. One such advisor who is active in the life settlement market — and already understands the value he can create for his clients — had historically negotiated directly himself with two or three leading buyers of life insurance policies. He thought that simply engaging with mor...

Life Settlement Case Study by Welcome Funds

How to Sell Your Life Insurance Policy for $4,743,000 Instead of $275,485?

Mr. Williams purchased $10 Million in life insurance coverage in 2001 to provide his family with financial security. Over time, his financial priorities changed: his wife passed away, his children became financially independent, financial burdens arose and the estate tax exemption increased substantially.

what is the cash value of a life insurance policy

Suitability of Life Settlements

Traditionally, estate planning advisors counsel their high net worth clients to obtain life insurance policies with large death benefits. The strategy is simple: create a vehicle for heirs to receive tax-free income at the time of an insured’s passing so sufficient funds are available to pay large estate tax bills when assets are inherited.

What is the Most Suitable Exit Strategy for Life Insurance?

All eyes in the life insurance agency and the financial advisory world have been on New York, where in the summer of 2019, the New York State Supreme Court paved the way for implementation of Insurance Regulation 187. This rule imposes a new standard for agents and brokers when issuing a recommendation to a client regarding an annuity or life insurance product.

How to Get the Highest Life Settlement Offer

When you decide to sell a valuable personal asset, you usually want to obtain the highest purchase price for that property. It is sound business sense. However, how do you truly know when you have reached the point of accepting and securing the most desirable offer?

Understanding the Fair Market Value of a Life Insurance Policy

When a professional advisor identifies a life insurance policy that a client no longer needs or wishes to maintain, he should ask, as standard protocol, whether that policy may have value in the secondary market. If so, the client may be able to sell the policy in a life settlement transaction, enabling him to receive a higher cash payout than he otherwise would obtain by lapsing or surrendering the policy back to the insurance company.

The Power of a Life Settlement Auction

Professional advisors with clients who no longer need or wish to maintain a life insurance policy have options when exploring the secondary market. Many advisors prudently rely on a licensed life settlement broker to assist them in the sale of the policy and with all aspects of the transaction. However, there is still a large number of professionals persuaded to work directly with only one buyer, called a life settlement provider.

Life settlement brokers represent the policy owner in the sale of their life insurance policy

Rebuttals to the “Direct Buyer” Model for Life Settlements

Most professional advisors who explore the potential sale of an unwanted life insurance policy on behalf of their clients will rely on the assistance of a licensed life settlement broker. Life settlement brokers represent the policy owner in the transaction and have a duty to act in their best interests. Most notably, the broker’s and client’s goal is aligned: to sell the policy for the highest price possible.

Carrier Resistance To Life Settlements: Clients Need To Know They Can Sell Their Policies

Consumers who sell their life insurance policies in the life settlement market receive as much as seven times more money than they would have received by surrendering their policies back to the insurance companies. Seven times! However, an estimated 9 out of 10 policies are allowed to lapse before paying a claim, according to the Life Insurance...

The Danger of Trying to “Time the Market” for Life Settlements

Most investors in the stock market understand the danger of “market timing” — trying to choose the right day to buy a stock when the price is low and sell it when the price is high.

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Assignment of leases and rents: absolutely collateral.

[caption id="attachment_25168" align="aligncenter" width="616"]

Jeffrey B. Steiner[/caption] Generally speaking, rents comprise the principal income derived from commercial real property ownership prior to the sale of the property. In traditional, non-recourse lending, where the special purpose entity borrower may become insolvent, lenders rely on the rent and related income from the property as security for the loan. One mechanism employed by commercial mortgage lenders to secure their interest in the rental stream is to require in the mortgage document an assignment of leases and rents pursuant to which the borrower ‘presently and absolutely’ assigns to the lender the rents from the real property. In turn, the lender grants the borrower a license, revocable upon an event of default, to collect and use the rents. Lenders have elected to include the language purporting to affect a “present” and “absolute” transfer with the hope of achieving the benefits of an “absolute” assignment of the rents over a “collateral” assignment. If the assignment is deemed to be an “absolute” transfer of legal title of the rents from the borrower to the lender, then such assignment would become enforceable immediately upon an event of default and revocation of borrower’s license to collect and use the rents—meaning, that the lender would have the right and ability to collect the rents directly from the tenants as soon as an event of default has occurred. By contrast, if the assignment is considered “collateral,” the lender runs the risk that, following an event of default and a resulting borrower bankruptcy, the rents will be deemed property of the bankruptcy estate, subject to a bankruptcy plan and protected by the Bankruptcy Code’s automatic stay. Case Law New York case law surrounding the treatment of assignments of leases and rents, whether by “absolute” or “collateral” assignment nominally suggests that judges will give effect to the intended purpose of these assignments, ignoring such “absolute” assignment language and interpreting the assignment as a “collateral” one for the mortgage loan. For this reason, a majority of New York state courts have ruled that lenders cannot create an absolute assignment of leases and rents in a mortgage transaction regardless of the language used. In Dream Team Assocs. v. Broadway City , 2003 N.Y. Slip Op 50894U, 2003 WL 21203342 (N.Y.Civ.Ct. May 7, 2003), for instance, the court addressed the question of whether an assignment of rents constitutes an absolute assignment and ruled that “[u]nder New York law…the language used in the assignment instrument itself is not determinative of what rights are actually transferred.” Relying on the fact that New York is a “lien theory” state rather than a “title theory” state, state courts typically hold that an assignment of leases and rents, regardless of the wording of the provision or form taken, will not be a present assignment when given as security for the loan. It follows then that, if assignments of rents do not serve to transfer immediate title to the rents, they instead transfer equitable title and constitute a pledge of the rents to which the lender cannot become entitled until taking some extra, affirmative enforcement steps. In In re Soho 25 Retail , No. ADV. 11-1286-SHL, 2011 WL 1333084, at *6–8 (Bankr. S.D.N.Y. March 31, 2011), the court sought to summarize certain potential steps to enforcement as follows: “requesting the appointment of a receiver to collect the rents, demanding or taking possession [of the property], commencing foreclosure proceedings, or seeking an order for the sequestration of rents.” These additional, affirmative steps do not seem onerous at first glance. However, as any mortgage lender will attest, the foreclosure process in New York State is slow. Furthermore, mortgage lenders are properly advised to avoid the exercise of any such rights prior to an appointment of a receiver or the consummation of foreclosure for fear of being found to be a mortgagee in possession, which could cause lenders to be deemed to have assumed all of the same duties and liabilities of the owner of the property. The rule was recently restated by the court in Allen v. Echeverria , 11 N.Y.S.3d 170, 173 (N.Y. App. Div. 2015), that is, a mortgagee who takes possession of the property mortgaged as collateral is “bound to employ the same care and supervision over the mortgaged premises that a reasonably prudent owner would exercise in relation to his own property; he is bound to make reasonable and needed repairs, and is responsible for any loss or damage occasioned by his willful default or gross neglect in this regard.” Most commercial mortgage lenders are not in the business of managing properties and do not want to be subject to the liability that could arise during such management, especially when the title to the property remains vested in an adverse party, i.e., its defaulted borrower. In light of the bankruptcy risks and the potential that an assignment of rents will not be deemed an absolute assignment, vigilant lenders will avail themselves of alternative mechanisms to exert control over the rents, namely, (i) cash management arrangements and (ii) guaranties that provide for liability in the event of a misappropriation of the rents. Through “lockbox” arrangements between the lender, the borrower and third-party banks, lenders will control the rents deposited by tenants directly into such lender-controlled clearing accounts. The rents will then be distributed according to the terms agreed upon by the parties at closing or otherwise at the direction of the lender in order to pay debt service and to accumulate reserves for the payment of property taxes and insurance. Borrowers will typically have no right to access these funds and, in all cases following an event of default, the banks will be prohibited from following any instructions received from borrowers. For loans in which lenders perceive greater risk, they can structure cash management to exercise greater control of the rents and to make less funds available to the borrower, decreasing the risk that rents will be misused. Additionally, loan documents always provide that, during an event of default, the rents deposited into the cash management accounts will be deemed to be additional collateral for the loan and may be applied by the lender to pay down the debt in lender’s sole discretion. Lenders may also protect against the misuse of rents by including a carve-out to the non-recourse nature of the mortgage loan in a guaranty executed by a borrower-affiliated person or entity. In such a guaranty, the guarantor will be liable to the lender to the extent of any loss suffered by the lender due to the misapplication or misappropriation of rents by the borrower or its affiliates.

Mortgage lenders should not rely on assignments of leases and rents, whether as a clause in the mortgage or as a separate agreement, to protect their interests in the income from their collateral prior to the appointment of a receiver or the final sale of the property at foreclosure. The enforcement of these agreements may take considerable time and money before the lender even gains a legal right to collect rents. Lenders should account for these risks by taking other legal measures which grant them greater control and actually give them enforceable rights immediately upon default. Jeffrey B. Steiner is a member of DLA Piper. Shane Goodhue, a law clerk (assoc.) at the firm, assisted in the preparation of this article.

Absolute Assignment

What does absolute assignment mean.

Absolute assignment refers to a policyholder transferring his or her ownership of a policy to another party. That transfer means that all of the coverage within that policy will now go to the newly named party. The original owner of the policy does not have to state his or her reasons for doing so nor does he or she need to stipulate any conditions for the transfer.

Insuranceopedia Explains Absolute Assignment

There are a number of reasons why a policyholder transfers all of their rights to a policy to another person or entity. They might think of it as a gift to someone else. It could be the sole means of paying off a loan. Even if the insured has now given up their rights to all of the claims and privileges, they are still responsible for payments for the policy. The new owner might have been asked by the original owner to pay the insurer after the transfer is completed, but if the newly named party fails to do so, the negligence will not be blamed on that person but on the original policyholder.

Related Definitions

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Practical Law

What is an assignment by way of security?

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Assignments by way of security

Published by a lexisnexis banking & finance expert.

Assignments by way of security can take different forms and it is important to understand how they are created and their effect. Security over choses in action such as debts and other contractual rights is often taken by way of an equitable or statutory assignment by way of security.

This Practice Note explains:

what assignments by way of security are

which types of assets they are used for

whether they take legal, statutory or equitable form and the advantages of the statutory form

why it is important to serve notice of an assignment by way of security

What is an assignment by way of security?

Assignments by way of security are a type of mortgage. They involve:

an assignment (ie transfer) of rights by the Assignor to the assignee

subject to:

an obligation to reassign those rights back to the assignor upon the discharge of the obligations which have been secured

When the obligations that have been secured have been discharged,

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Related legal acts:

Law of Property Act 1925 (1925 c 20)
Small Business, Enterprise and Employment Act 2015 (2015 c 26)

Key definition:

Assignor definition, what does assignor mean.

The entity disposing of an asset by an assignment .

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IMAGES

Absolute Assignment
Sublease Vs. Assignment; the Effects and Obligations on New Owner
Solved Chapter 02: Assignment
ANTI-ASSIGNMENT CLAUSES: ARE THEY ENFORCEABLE AND HOW THEY AFFECT THE PURCHASE OF RECEIVABLES
Week 6 Homework v2 sas
Chapter 02: Assignment Asset Allocation and Security

COMMENTS

Security assignments
Security assignments sometimes use the term "absolute" to make clear they are intended to be legal assignments. However, the terminology used is not decisive. An assignment will not be "absolute ...
Security in finance transactions
Assignment by way of security. A borrower's rights against third parties, such as the right to receive payment for debts on its own books, can be assigned to a third party as a way of selling those rights - this is an absolute, or direct, assignment. ... As a result, a legal assignment should be expressed as an absolute assignment with a ...
FAQs on assignments in finance transactions
Even if a security assignment is drafted as an absolute, notified assignment it could still be liable to be re-characterised as a floating charge if, in practice, the assignee too readily and frequently releases some of the assigned rights or their proceeds from its security at the assignor's request. Finally, re-characterisation of an ...
Security Assignments
However, a security assignment can qualify (provided it is not "by way of charge"): the fact the assignor has an equity of redemption under a security assignment does not of itself prevent the assignment from being "absolute". Security assignments sometimes use the term "absolute" to make clear they are intended to be legal assignments.
To assign or not to assign that's a real question
A sum becoming due under an existing contract is regarded in law as an existing asset, even though the right to payment has not yet matured. Under the Law of Property Act 1925 ("LPA"), a legal assignment must: ‒ be in writing; ‒ be absolute and, in the case of a debt, of the whole (and not part only) of the amount owed;
A Collateral Assignment of Life Insurance
With an absolute assignment, the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral ...
What Is a Life Insurance Assignment?
Absolute Assignment. When you make an absolute assignment, the rights, title and interest in the life insurance policy pass on to another party without the possibility of reversal.
Absolute Assignment of Life Insurance Policies
An absolute assignment on a life insurance policy transfers the policy's ownership rights to another party. Reasons for making an absolute assignment include financing a charitable gift and ...
PDF What Is a Ban on Assignment? the Business Contract Terms (Assignment of
an absolute assignment, with no equity of redemption, over receivables such that there is an outright disposal of the receivable from the seller to the financier; and • in the case of secured borrowing base (BB) facilities, take security (typically an absolute assignment by way of security) over the receivables.
Exploring the Legal Aspects of Equitable Assignments in Finance
A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in its own name against the debtor for payment of the debt owed, or to enforce rights in the contract. A legal assignee has this right, but there is a question over whether an equitable assignee has this ...
Treatment of an Absolute Assignment of Rents in Bankruptcy
Federal Savings Bank, the U.S. Bankruptcy Court for the District of Massachusetts similarly held that an assignment of rents purporting to "unconditionally" assign all rents constituted additional security, rather than absolute title, because the assignment was made conditional on the borrower's default and would terminate upon payment of ...
3.9.9 Assignment Provision
If an absolute assignment was made, the company will pay the entire proceeds to the assignee. If a collateral assignment was made, the company will usually make the check payable jointly to the assignee and the beneficiary. If a partial assignment was made, the unpaid mortgage balance will be paid to the assignee and the remainder will be paid ...
Assignment by way of security
↑ An assignment by way of security could be a legal assignment, if it meets the formal criteria, but one of those is that the assignment is absolute and not by way of security only, so — yeah. And there is authority about this, by the way: Mailbox (Birmingham) Limited v Galliford Try Construction Limited [2017] EWHC 67. ↑ "That old man, despite all the hardships, still manages to put ...
Understanding Absolute Assignment and Life Settlements
WHAT IS ABSOLUTE ASSIGNMENT? Absolute Assignment is a legal instrument that allows the owner of a life insurance policy or other valuable assets to transfer all rights and ownership of the asset to a designated assignee. This transfer of ownership is comprehensive and unrestricted, giving the assignee complete control and authority over the asset.
Assigning Your Life Insurance Policy
An absolute assignment is normally intended to give the assignee every right in the policy that you possessed prior to the assignment. When the transaction is completed, you have no further financial interest in the policy. ... It is a security arrangement to protect the assignee (lender) by using the policy as security for repayment. After the ...
What is Absolute vs Collateral Assignment of Life Insurance?
Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee. The assignee takes full ownership of the policy, being held liable for any premiums and also having ...
Assignment
Assignment. The transfer of a right from one party to another. For example, a party to a contract (the assignor) may, as a general rule and subject to the express terms of a contract, assign its rights under the contract to a third party (the assignee) without the consent of the party against whom those rights are held. Obligations cannot be ...
Assignment of Leases and Rents: Absolutely Collateral
Case Law New York case law surrounding the treatment of assignments of leases and rents, whether by "absolute" or "collateral" assignment nominally suggests that judges will give effect to ...
What is an Absolute Assignment?
Absolute assignment refers to a policyholder transferring his or her ownership of a policy to another party. That transfer means that all of the coverage within that policy will now go to the newly named party. The original owner of the policy does not have to state his or her reasons for doing so nor does he or she need to stipulate any ...
What is an assignment by way of security?
This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more. 650+ full-time experienced lawyer editors globally create and maintain timely, reliable ...
Assignments by way of security
Assignments by way of security are a type of mortgage. They involve: •. an assignment (ie transfer) of rights by the Assignor to the assignee. subject to: •. an obligation to reassign those rights back to the assignor upon the discharge of the obligations which have been secured. When the obligations that have been secured have been discharged,
Absolute Assignment vs Collateral Assignment of Life ...
It's important to understand terms like absolute assignment and collateral assignment, as well as weigh the dierences in order to satisfy your particular nancial needs. What is absolute assignment of life insurance? Absolute assignment in insurance involves signing over your entire policy to another person or entity.

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Security Assignments – Not Always What They Say They Are?

Is an "absolute" security assignment legal or equitable?

Legal assignments by way of security

Legal or equitable – does it matter?

Could a security assignment be "floating" security?

Finance and Banking

What Is a Collateral Assignment of Life Insurance?

Key Takeaways

How a Collateral Assignment of Life Insurance Works

Example of Collateral Assignment of Life Insurance

Alternatives to Collateral Assignment of Life Insurance

What Are the Benefits of Collateral Assignment of Life Insurance?

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Is Collateral Assignment of Life Insurance Irrevocable?

What is the Difference Between an Assignment and a Collateral Assignment?

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