Daily Development for Monday, October 19, 2009
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

MORTGAGE FORECLOSURE; ASSIGNMENTS OF RENTS; FEDERAL GOVERNMENT LESSEES: United States Government cannot be made a party defendant in a receivership action in connection with a mortgage foreclosure when it holds a leasehold interest in the foreclosure property but will not be subject to the foreclosure, and insists on paying rent into court under an interpleader rather than paying to the lender under the Assignment of Rents.

United International Bank v. RedstoneUSA Corp., 2009 Westlaw 2525132 ) (D.E.D.N.Y. 8/17/09)
Bank held a mortgage and assignment rent on some commercial property in Brooklyn.  Under a prior stipulation, the tenants were to be instructed to remit the rent directly to the tenant.  One of the tenants was the United States Government, which apparently held a senior lease that would not be foreclosed in Bank’s foreclosure action.  (The court does not say why.) 

It appears (again only by inference) that the United States Government did not remit the rents to the Bank, and Bank brought an action to foreclose and also sought a receiver to implement the assignment of rents It named the United States as a defendant under the "Quiet Title Act,” 28 U.S.S. 2409a(a)a.  Apparently the United States offerred to pay rents into court pending the outcome of the dispute. 

The United States District Court for the Eastern District of New York, on motion of the fee owner, dismissed the action for lack of subject matter jurisdiction based.  The Quiet Title Act states  that "[t]he United States may be named as a party defendant in a civil action under this section to adjudicate a disputed title to real property in which the United States claims an interest, other than a security interest or water rights…"   According to the Court, however, the United States claimed no interest adverse to the Bank here, as it was not being foreclosed upon and stipulated to payment of rents into court under an interpleader.

"B]ecause the Quiet Title Act does not waive the sovereign immunity of the United States unless the United States holds an interest in real property adverse to the plaintiff, this action must be dismissed for lack of subject matter jurisdiction."

Comment 1: This pithy little case, which the editor drew from the First American Title Insurance New York current developments, prepared by Michael Berry, is a bit puzzling to the Editor.  Surely payment of rents into court as an interpleader is far different from paying directly to a receiver who could use the funds (pursuant to court order) to maintain the property and pay expenses.  Perhaps, since the court also will supervise the receivership,   the court intended to release the funds from the interpleader account to permit their expenditure.  Otherwise, it would appear that the Government’s refusal to honor the receivership does put it adverse to the foreclosing Bank.

Comment 2: The editor sees no distinction based upon the fact that the Bank is not getting foreclosed.  Assuming that the Government is senior to the mortgage, the Bank’s rights would still include collecting the rents from the property under the assignment, as these are current receivables of the tenant and have been assigned for security under the Assignment.    

Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters.  The same is true of all
commentary provided by contributors to the DIRT
list.  Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor or
individual contributors and are in no sense the
publication of the ABA.

Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality


DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 to 15 messages per work day.

DIRT Developments are posted periodically, as supply dictates.

To subscribe, send the message

subscribe Dirt [your name]



To cancel your subscription, send the message
signoff DIRT to the address:


for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically upon
residential real estate matters.  Because real estate brokers generally find
this service more valuable, it is named “BrokerDIRT.”  But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list.  If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]



To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:


DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, any substitute reporters, DIRT, and its sponsors.

All DIRT Developments, and scores of other cases, arranged topically, are reported in hardcopy form in the ABA Quarterly Report.  This is a limited subscription service, available to ABA Section Members, ACMA members and members of the NAR.   Qualified subscribers may Subscribe to this Report ($30 for Two Years) by Sending a Check to Ms. Bunny Lee, ABA Section on Real Property, Trust & Estate Law, 321 N. Clark Street, Chicago, Il 60610. Contact Bunny Lee  at (312) 988-5651, Leeb@staff.abanet.org   ABA members also can access prior and current editions of this report on the ABA RPTE section website.

DIRT has a WebPage at: