## Facts

- A limited partnership owned a Maryland apartment complex financed by promissory notes and loan documents secured by a deed of trust.
- The deed of trust, recorded in 1986, granted a security interest in “all rents, profits, and income” from the property.
- The lender’s rights under the notes and deed of trust were assigned to Condor One, Inc. in September 1996.
- Condor sent the debtor a written default and acceleration notice on September 26, 1996, and filed a state-court action the next day seeking appointment of a receiver pending foreclosure.
- The debtor filed a Chapter 11 petition later that day, staying the receiver action.
- In the Chapter 11 case, Condor asserted that the apartment rents were its cash collateral and could not be used without consent or adequate protection.
- The debtor argued Condor’s interest in rents was not properly perfected or enforceable because contractual notice-of-default requirements were allegedly not satisfied prepetition.

## Issues

1. Whether, under the recorded deed of trust and Maryland law, Condor held a present, perfected interest in post-petition apartment rents making them “cash collateral” under 11 U.S.C. § 363(a).
2. Whether alleged noncompliance with contractual default-notice provisions prevented Condor from having an enforceable, perfected interest in rents as of the petition date.

## Decision

- The court held Condor had a valid, perfected interest in the apartment rents based on the recorded deed of trust and the prepetition assignment to Condor.
- The court concluded the post-petition rents constituted “cash collateral” under 11 U.S.C. § 363(a).
- The debtor could not use the rents without Condor’s consent or court authorization conditioned on adequate protection under 11 U.S.C. § 363(c)(2) and (e).
- Contractual disputes about the adequacy or timing of default notice did not defeat the existence or perfection of the recorded lien/assignment in rents for bankruptcy cash-collateral purposes.

## Legal Principles

- An assignment-of-rents provision contained in a properly recorded deed of trust can create and perfect a security interest in rents under applicable state law by recordation.
- For bankruptcy purposes, “cash collateral” includes rents in which both the estate and a secured creditor hold an interest. 11 U.S.C. § 363(a).
- A debtor in possession may not use cash collateral unless the secured creditor consents or the court authorizes use after notice and a hearing with adequate protection of the creditor’s interest. 11 U.S.C. § 363(c)(2), (e).
- Contractual conditions governing enforcement (such as notice-of-default provisions) are distinct from perfection of a recorded security interest and generally do not negate a perfected interest recognized as cash collateral.

## Conclusion

The court treated the recorded assignment of rents in the deed of trust as a perfected security interest effective as of recordation, held that post-petition apartment rents were cash collateral, and required the debtor to obtain consent or provide adequate protection before using the rent proceeds in Chapter 11.


In re Fairview–Takoma Ltd. P'ship, 206 B.R. 792 (Bankr. D. Md. 1997)