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VECTOR REALTY v. 711 FOURTEENTH STREET

May 28, 1998

VECTOR REALTY GROUP, INC., APPELLANT,
V.
711 FOURTEENTH STREET, INC., APPELLEE. SIGNET BANK, INTERVENOR/APPELLEE.



APPEAL FROM THE SUPERIOR COURT, FREDERICK H. WEISBERG, J. [711 FOURTEENTH STREET, 711 A2d Page 1266]

Before Farrell and King, Associate Judges, and Belson, Senior Judge.

The opinion of the court was delivered by: Belson, Senior Judge:

This is an appeal from the trial court's denial of appellant's motions for writ of attachment, preliminary injunction, judgment of condemnation and default judgment. Appellant argues that a secured bank mortgagee cannot hold assigned rents in excess of principal and interest payments and other specified expenses in a reserve account without first satisfying a judgment creditor of the mortgagor. We affirm.

I.

Vector Realty Group, Inc. ("Vector") procured the District of Columbia as a tenant for the building owned by 711 Fourteenth Street, Inc. ("711") *fn1 pursuant to a brokerage agreement providing for a brokerage commission to be paid to Vector by 711. 711 failed to pay the commission, and on October 30, 1995, Vector won a judgment against 711 in the amount of $239,739.11 plus pre- and post-judgment interest. *fn1 Vector is attempting to collect on that judgment.

Signet Bank, as a mortgagee of 711, intervened in this action on March 3, 1996, to protect its interest. Signet holds notes secured by first and second deeds of trust on 711's interest in the property in the amounts of $17,750,000.00 and $4,144,791.00 respectively that preceded the brokerage agreement between Vector and 711. The deeds of trust were accompanied by assignments of leases that assigned to Signet:

All right, title, interest and estate of Assignor, as landlord or lessor, in, to and under all of the lease and/or sublease agreements, licenses and other agreements for the occupancy of all or any portion of the hereinafter described property [711 FOURTEENTH STREET, 711 A2d Page 1267]

. . . whether such lease and/or sublease agreements, licenses and occupancy agreements now exist or are hereafter entered into by Assignor, together with all extensions, renewals and/or modifications of, or substitutions for, such lease and/or sublease agreements, licenses and other occupancy agreements. . . .

The assignments of leases also provided with respect to default by 711 that:

A written demand by Assignee to any lessee for the payment of rent, rentals, fees, profits, payments and other sums of money that become due under the Leases, after the occurrence of any . . . default, breach or misrepresentation by Assignor claimed by Assignee, shall be sufficient to require such lessee to make all future payments of such rents, rentals, fees, payments and other sums of money directly to Assignee without the necessity for further notes to such lessee or consent by Assignor.

The trial court found that these and other provisions created a system whereby, upon default by 711 and written demand by Signet, rents on the property were automatically assigned to Signet and were to be paid into a lockbox collected by Signet.

The loans went into default in 1991 and the assignment of rents went into effect at that time. After six master modification and extension agreements, the current loan documents allow Signet to apply the collected rents to the principal and interest due on the mortgage, to the expenses of maintaining the property, and to other purposes including, in its sole discretion, the maintenance of a reserve account. The documents further authorize Signet, again in its sole and absolute discretion, to determine the purpose for any such reserve fund and the amount to be deposited in it. At the time this action commenced, Signet held a reserve account with funds in excess of $1,400,000.00.

Vector argues that Signet cannot hold excess rents in the reserve account, which Vector refers to as an escrow account, without first satisfying claims of legitimate judgment creditors. Signet responds by arguing that it has a perfected security interest in the rents owed and ...


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