## Facts

- Vienna Park Properties, a limited partnership, bought 300 condominium units in Vienna, Virginia, financed largely by a lender that took recorded deeds of trust on each unit.
- Each deed of trust included an assignment-of-rents clause as additional security.
- Vienna Park and the seller created an escrow account funded principally from the loan proceeds; a bank held the account for property management purposes.
- Under the escrow agreement, Vienna Park had a contingent contractual right to any remaining escrow balance after satisfying obligations to the seller (the escrow “residual”).
- Vienna Park assigned its right to the escrow residual to the lender as additional collateral; the lender later assigned its loan documents and collateral interests to the Banks.
- After Vienna Park defaulted, the Banks began foreclosure; Vienna Park then filed Chapter 11.
- Litigation in bankruptcy addressed (1) the Banks’ security interest in the escrow residual and (2) whether postpetition rents were the Banks’ cash collateral.

## Issues

1. Whether the Banks held a perfected security interest, under Virginia law, in Vienna Park’s contingent right to the escrow residual, or whether the estate could avoid the interest under 11 U.S.C. § 544(a).
2. Whether the assignment-of-rents clauses created an enforceable interest in rents such that the rents were “cash collateral” under 11 U.S.C. § 363.

## Decision

- The Second Circuit affirmed the district court’s judgment in full.
- The Banks’ security interest in Vienna Park’s right to the escrow residual was unperfected because the collateral was a “general intangible” requiring filing, and no financing statement was filed; the estate could avoid the interest under § 544(a).
- The assignment-of-rents provisions created a valid, enforceable interest in rents; the rents constituted “cash collateral” under § 363, restricting the debtor’s use absent consent or adequate protection.

## Legal Principles

- A debtor’s contingent contractual right to receive an escrow residual is a “general intangible” under Virginia’s UCC; perfection requires filing a financing statement.
- Possession of (or access to) the escrowed funds does not perfect a security interest in a contractual right to the residual.
- Under 11 U.S.C. § 544(a), the trustee or debtor-in-possession may avoid an unperfected security interest as a hypothetical lien creditor as of the petition date.
- An enforceable assignment of rents in deeds of trust can give the secured creditor an interest in rents that are “cash collateral” under 11 U.S.C. § 363.
- A debtor may not use cash collateral without the secured creditor’s consent or court authorization conditioned on adequate protection of the creditor’s interest.

## Conclusion

The court held that the Banks lost their claimed lien in the escrow residual because they failed to perfect a security interest in a general intangible, but it enforced the deeds’ assignment-of-rents provisions and treated rents as cash collateral subject to the Bankruptcy Code’s use restrictions.


Vienna Park Props. v. United Postal Sav. Ass’n (In re Vienna Park Props.), 976 F.2d 106 (2d Cir. 1992)