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REAL ESTATE LAW

What is a deed of trust with assignment of rents.

By Rebecca K. McDowell, J.D.

February 24, 2020

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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deed of trust assignment of leases and rents

  • What Is a Corporate Assignment of Deed of Trust?

A deed of trust is a written instrument granting a lien on real property. While slightly different from a mortgage, they are functionally nearly the same. Some states use deeds of trust instead of mortgages while others allow both. Either way, a deed of trust used to secure a commercial loan may also include an assignment of rents , which gives the lender the right to collect rental income from the property in the event of default.

What Is a Deed of Trust?

A ​ deed of trust ​ is a document that a borrower may execute in favor of a lender to give the lender a lien on a parcel of real estate. Like a mortgage, a deed of trust secures the loan by allowing the lender to foreclose on the real estate if the loan isn't paid (although in some states that use deeds of trust, a foreclosure isn't necessary).

​ Read More: ​ How to Research a Deed of Trust

Deed of Trust vs. Mortgage

A deed of trust is very similar to a mortgage in that it pledges property to secure a loan. A mortgage, however, is simpler; the property owner executes a mortgage document in favor of the lender, and the lender records the mortgage and has a lien , but the property owner still holds title to the property.

A deed of trust, on the other hand, grants an actual ownership interest in the property to a trustee, who holds the property in trust for the lender until the obligation is paid.

What Is an Assignment of Rents?

An ​ assignment of rents ​ is extra security granted to a lender that provides a commercial loan. Commercial loans are loans that are not made for family or household use but for business purposes.

When a borrower grants a mortgage or deed of trust on real estate and the real estate has tenants who pay rent, the lender can demand an assignment of rents in addition to the mortgage or deed of trust.

The assignment of rents means that if the borrower defaults on the loan, the lender can step in and collect the rents directly from the tenants.

Deed of Trust With Assignment of Rents

A deed of trust may contain an assignment of rents clause for that same property. In addition to a clause in the deed of trust, the lender may also require the borrower to execute a separate document called an "Assignment of Rents" that is recorded with the register of deeds.

Whether the assignment is written in the deed of trust only or is also contained in a separate document, it is binding on the borrower as long as its language is clear and sufficient to create an assignment under state law.

Exercising an Assignment of Rents

When a lender decides to collect the rents on the borrower's property, the lender is said to be exercising the assignment of rents. The lender cannot exercise the assignment unless the borrower has defaulted on the loan. Once that happens, the lender can send a written demand to the tenant or tenants, requiring that the rents be paid directly to the lender.

Absolute Assignments of Rents

An assignment of rents most likely will contain language that the assignment is an ​ absolute assignment ​. In most states, an absolute assignment gives the lender an immediate interest in the rents. This means that the lender actually owns the rents and is simply allowing the borrower to collect them on license until an event of default. Once a default occurs, the lender can intercept the rents without taking any court action; a letter to the tenants is all that's needed.

Every state's laws are different; the law of the state where the property is located will dictate how a lender can exercise an assignment of rents.

​ Read More: ​ What Is the Difference Between a Deed and a Deed of Trust?

  • Companies Incorporated: Mortgage States and Deed of Trust States
  • American Bar Association: Commercial Real Estate FAQs
  • Schulte Roth & Zabel: Sixth Circuit Upholds Assignment of Rents to Secured Lender
  • Findlaw: California Civil Code - CIV § 2938
  • Legal Beagle: What Is the Difference Between a Deed and a Deed of Trust?
  • Legal Beagle: How to Research a Deed of Trust
  • Legal Beagle: Documents Needed to Refinance a Mortgage
  • Legal Beagle: How to File a Property Lien

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (Pro-Lender Short Form) (With Loan Agreement) (TX) | Practical Law

deed of trust assignment of leases and rents

Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (Pro-Lender Short Form) (With Loan Agreement) (TX)

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What Is a Deed of Trust With Assignment of Rents?

Marie Murdock

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Some states refer to a voluntary lien against real property in exchange for money as a mortgage, while others refer to it as a deed of trust. Both mortgages and deeds of trust may incorporate an assignment of rents and leases that allows the lender to collect rent money held by,or due to, the property owner by tenants once the owner defaults or fails to make payments. An assignment of rents and leases may also be recorded as a separate document.

Absolute Assignment

A lender may require a borrower to execute an absolute assignment of rents in conjunction with a deed of trust. This conveys the rents to the lender at the time of the assignment but, in actuality, allows the borrower, as a licensee, to continue to collect the rents so long as the deed of trust is not in default. Payments under an absolute assignment will ordinarily be paid to the borrower or owner of the property as long as the loan secured by the deed of trust is not in default.

Collateral Assignment

In a collateral assignment, the borrower is generally considered to retain ownership of the rents until the lender takes action to enforce the assignment or gains possession of the property through foreclosure. One concern for the lender in this instance is that, in a judgement, other creditors will take priority, causing the lender to lose its security interest in the rent.

Rights After Default

Under an absolute assignment, if a borrower defaults on the deed of trust, the lender may request appointment of a receiver to collect the rents until foreclosure of the deed of trust or a determination of ownership of rents by a court of law. This prevents the borrower’s disposing of rent money due the lender, pending foreclosure. Under a collateral interest, however, some bankruptcy courts have held that the rents belong to the borrower until title to the real estate merges with the right to collect rents. If this is the case, and the borrower continues to operate as a debtor-in-possession of the property under bankruptcy, the lender may not be entitled to receive any rent money unless or until the bankruptcy court allows foreclosure of the property.

Uniform Assignment of Rents Act

Due to the inconsistency in interpretation of state law pertaining to assignment of rents and leases, some states have adopted a Uniform Assignment of Rents Act that better clarifies how rent monies will be handled in the event of default under the deed of trust and loan documents. The uniform act generally strengthens the lender’s position by recognizing his interest in rent money pending foreclosure and bankruptcy proceedings.

  • Agentxtra.net: Assignment of Rents, Leases and Profits
  • Polsinelli Shughart: Exercising an Assignment of Rents: Who is Entitled to the Money?
  • Andrews Kurth, LLP: Texas Enacts the Texas Assignment of Rents Act
  • Much Shelist: Assignment of Rents in Illinois: Shaky Ground for Commercial Lenders

Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.

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Deed Of Trust: What It Is And How It Works

Brai Odion-Esene

Updated: Mar 2, 2023, 3:15am

Deed Of Trust: What It Is And How It Works

Buying property usually comes with an avalanche of paperwork. It can be a confusing process, especially when it comes to knowing the difference between the various documents you sign. If there’s one contract that’s important to understand, however, it’s the deed of trust.

Depending on your lender and the state you live in, you may or may not need a deed of trust when financing a home purchase. Here’s what you should know about this contract and how it differs from a mortgage .

What Is a Deed Of Trust?

When you finance the purchase of a property, you will sign either a mortgage or deed of trust—but not both. You can take out a mortgage in all 50 U.S. states, while a deed of trust is only available in some states.

A deed of trust is a legal document that secures a real estate transaction. It works similarly to a mortgage, though it’s not quite the same thing. Essentially, it states that a designated third party holds legal title to your property until you’ve paid it off according to the terms of your loan. Deeds of trust are recorded in public records just like a mortgage.

How Does a Deed of Trust Work?

A deed of trust exists so that the lender has some recourse if you don’t pay your loan as agreed. There are three parties involved in a deed of trust: the trustor, the beneficiary and the trustee.

The three parties involved in a deed of trust for a real estate transaction are a:

  • Trustor. This is the person whose assets are being held in the trust, also known as the borrower (i.e., you). The title to your home is held by the trust until the loan is paid off. Even so, you remain the equitable owner as long as you keep paying the loan according to the terms outlined in the deed of trust. That means you enjoy all the benefits of being the homeowner, such as the right to live there and gain equity, even though you aren’t the legal title holder.
  • Beneficiary. The beneficiary is the party whose investment interest is being protected. Usually, that’s the lender, though it also can be an individual with whom you have a contract.
  • Trustee. The trustee holds the legal title of the property while you’re making payments on the loan. Trustees often are title companies, but not always. Once you’ve paid off your loan, the trustee is responsible for dissolving the trust and transferring the title to you.

If you sell the property before it’s paid off, the trustee will use proceeds of the sale to pay the lender the remaining balance (you keep the profits). If you fail to meet your payment obligations and default on the mortgage, the property would go into foreclosure , and the trustee would be responsible for selling the property.

What Is Included in a Deed of Trust

A deed of trust includes many important details about your property, loan and related terms and conditions—much of the same information you would find in your mortgage. Typically, you’ll find the following outlined in a deed of trust:

  • The names of the parties involved (the trustee, trustor and beneficiary)
  • The original loan amount and repayment terms
  • A legal description of the property
  • The inception and maturity dates of the loan
  • Various clauses, such as acceleration and alienation clauses
  • Any riders regarding the clauses outlined

It’s common for a deed of trust to include acceleration and alienation clauses. If you’re delinquent on your loan, it can trigger the acceleration clause—essentially a demand for immediate repayment of the loan. Depending on the terms, this can happen after missing just one payment, though lenders often give a few months of leeway to allow the borrower to catch up on payments. If you fail to do so under the terms outlined in the acceleration clause, the next step is formal foreclosure proceedings.

An alienation clause is also known as a due-on-sale clause and it prevents anyone who buys the property to take on the loan under its current terms. Instead, the alienation clause would dictate that the loan must be paid in full if you sell the property.

Depending on your state, the deed of trust may also include a power of sales clause. This allows for a much faster foreclosure process than if your lender had to involve the state courts in a judicial foreclosure. That said, you won’t be foreclosed on overnight under a power of sales clause; the exact process differs by state and lender. Still, if you’re facing a nonjudicial foreclosure, it can happen in a matter of months. If you want to formally fight the foreclosure, you’ll need to hire a lawyer.

States that allow power of sale foreclosures include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming.

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Deed of Trust Vs. Mortgage

The terms “deed of trust” and “mortgage” are often used interchangeably, but they’re really two different things. That said, there are also some similarities. To review, here are the key ways a mortgage and deed of trust are similar as well as different.

Similarities

  • Public record: Both documents are recorded with the county clerk.
  • Subject to state law: The exact terms of a mortgage or a deed of trust depend on the local state law.
  • Contracts, not loans: Neither document serves as the actual loan agreement; a deed of trust or mortgage is a contract that places a lien on your property and dictates how your lender can repossess the property through foreclosure.

Differences

  • Parties involved: A mortgage is an agreement between a borrower and lender, while a deed of trust involves a trustor, beneficiary and trustee.
  • Foreclosure type: A mortgage requires a judicial foreclosure, while a deed of trust allows for a nonjudicial foreclosure.
  • Foreclosure timeline: Judicial foreclosure on a mortgage can be a lengthy process, while nonjudicial foreclosure through a deed of trust is much faster.

What’s the Advantage of a Trust Deed Over a Mortgage?

If the borrower defaults, a trust deed makes it possible for the lender to sell the property without having to go to court. With a mortgage, the lender has to file a foreclosure claim in court and secure a judge’s approval to sell the property. This can mean a lot of expenses for both the borrower and the lender.

If you are investing in a real estate project, a trust deed also has a few advantages over a mortgage. This is because the investor is considered the lender in the transaction, and their name is recorded on the trust deed as such. The investor can receive interest on their “loan” and the principal is repaid in full once the property has been built.

Warranty Deed Vs. Deed of Trust

Both a warranty deed and deed of trust are used to transfer the title of a property from one person to another. However, the difference between these two contracts is who is protected. As you now know, a deed of trust protects the beneficiary (lender). A warranty deed, on the other hand, protects the property owner.

When a property title is transferred with a warranty deed, ownership goes from the seller (also known as the grantor) to the buyer (also known as the grantee). The warranty deed guarantees that the previous owners, or grantor, had full ownership of the property and right to transfer it. In other words, it promises that you won’t inherit any liens or future claims against the property. It provides peace of mind that you own the property outright once the title is in your name.

Are Trust Deeds a Good Idea?

Trust deeds could be a good idea if you are an investor searching for options to earn passive income, while also being protected via the deed. However, investing in real estate is unpredictable and returns are never guaranteed. A trust deed does not reduce the probability of default or ensure that you will recoup your initial investment.

Consult with a financial advisor or investment professional before going down this route.

Personal finance writer Casey Bond contributed to this article.

Get Forbes Advisor’s ratings of the best mortgage lenders, advice on where to find the lowest mortgage or refinance rates, and other tips for buying and selling real estate.

Frequently Asked Questions (FAQs)

What is an assignment of deed of trust.

An assignment of trust deed is necessary if a lender sells a loan secured by a trust deed. It assigns the trust deed to whoever buys the loan (such as another lender), granting them all the rights to the property. It is recorded along with the original, making it a matter of public record.

What happens with the deed of trust after you pay off your mortgage?

Once you pay off your loan, the trustee is responsible for releasing the trust and transferring the title to you. You now have full ownership of the home.

Can you sell a house with a deed of trust?

Yes, you can. However, if you are selling the house for less than the loan amount, you will need the lender’s approval. Once the property is sold, the trustee uses the proceeds to pay the lender what they are still owed. The borrower then gets any money that is left over.

How long does a deed of trust last?

A deed of trust, like a mortgage, typically has a maturity date, which is when the loan must be paid off in full. That date will vary transaction to transaction. Sometimes a deed of trust won’t have a maturity date. In this scenario, state law dictates the number of years a deed of trust lasts, anywhere from 10 to 60 years after it was recorded.

What is a purchase money deed of trust?

A purchase money deed of trust secures the funds used to buy the property. It also gives the buyer priority over any liens or encumbrances against them

Does a deed of trust show ownership?

No. A deed of trust is a legal document that secures a real estate transaction. It only shows that a designated third party holds legal title—i.e. ownership—to your property until you’ve paid it off, according to the terms of your loan.

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What Is An Assignment of Rents Trust Deed?

Post by Leesbro63 » Fri Mar 01, 2024 6:42 am

Re: What Is An Assignment of Rents Trust Deed?

Post by Lastrun » Fri Mar 01, 2024 6:57 am

Post by Leesbro63 » Fri Mar 01, 2024 6:58 am

Lastrun wrote: ↑ Fri Mar 01, 2024 6:57 am I will take a shot, but no real estate lawyer. In commercial loans in VA, our state is a deed of trust state. In a deed of trust, the borrower conveys title to a trustee to secure the loan but retains possession and beneficial ownership. Along with the deed of trust is a separate Assignment of Rents and Leases. https://www.sec.gov/Archives/edgar/data ... dex105.htm Sometimes I have seen the deed of trust and assignment of leases combined into one recorded document. https://www.sec.gov/Archives/edgar/data ... ex1054.htm So it seems to me a lender was willing to accept a lower form of security, and that his estate perhaps was not sufficient to pay off the debt.

Post by Lastrun » Fri Mar 01, 2024 7:47 am

Post by SuzBanyan » Fri Mar 01, 2024 8:05 am

Lastrun wrote: ↑ Fri Mar 01, 2024 7:47 am He had a loan on his house, and the lender agreed to give up the right to foreclose but kept the right to all future rents?

Post by Lastrun » Fri Mar 01, 2024 8:48 am

SuzBanyan wrote: ↑ Fri Mar 01, 2024 8:05 am Lastrun wrote: ↑ Fri Mar 01, 2024 7:47 am He had a loan on his house, and the lender agreed to give up the right to foreclose but kept the right to all future rents?

Post by Carefreeap » Fri Mar 01, 2024 9:02 am

Post by Leesbro63 » Fri Mar 01, 2024 10:18 am

Post by Carefreeap » Fri Mar 01, 2024 2:01 pm

Leesbro63 wrote: ↑ Fri Mar 01, 2024 10:18 am The article made it sound as if Richard Lewis had done some great thing for his wife. It’s still not clear to me how she’s better off with this than just as his “normal” spousal heir/survivor.

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deed of trust assignment of leases and rents

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  1. What Is a Deed of Trust With Assignment of Rents?

    A deed of trust is similar to a mortgage, and like a mortgage, it may include an assignment of rents. An assignment of rents gives the lender the right to step in and collect rent from the tenants if the borrower defaults on the loan payments. This right is absolute in some states but not in others.

  2. What Is a Deed of Trust With Assignment of Rents?

    It Secures the Note. A deed of trust with assignment of rents acts as extra security for the lender. It gives the lender the right to collect any rents that the property generates if you don't make your loan payments. The lender records a notice of default against you and can then can present a copy of the notice along with a copy of the deed ...

  3. Deed of Trust, Assignment of Leases and Rents, Security Agreement, and

    A deed of trust intended for use in a commercial real estate loan or a corporate credit facility governed by a loan agreement or a credit agreement and secured by one or more commercial real properties in Texas. This Standard Document is for a term loan that has been fully advanced at closing. ... Deed of Trust, Assignment of Leases and Rents ...

  4. What Is a Deed of Trust With Assignment of Rents?

    An assignment of rents and leases may also be recorded as a separate document. Absolute Assignment. A lender may require a borrower to execute an absolute assignment of rents in conjunction with a deed of trust. This conveys the rents to the lender at the time of the assignment but, in actuality, allows the borrower, as a licensee, to continue ...

  5. Deed Of Trust: What It Is And How It Works

    An assignment of trust deed is necessary if a lender sells a loan secured by a trust deed. It assigns the trust deed to whoever buys the loan (such as another lender), granting them all the rights ...

  6. Deed of Trust, Assignment of Lease and Rents (Virginia)

    THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Deed of Trust") is made and entered into as of October 21, 2009, by and among OMEGA PROTEIN, INC., a Virginia corporation, whose address is 2105 Citywest Blvd., Suite 500, Houston, Texas 77042-2838 (the "Grantor"), in favor of RICHARD ...

  7. Deed of Trust, Assignment of Rents and Leases

    Section 4.1Assignment. Borrower does hereby presently, absolutely and unconditionally assign to Trustee for the benefit of Lender, Borrower's right, title and interest in all current and future Leases and the absolute, unconditional and continuingright to receive and collect all Rents, it being intended by Borrower that this assignment ...

  8. PDF Deed of Trust, Assignment of Rents and Leases, Security Agreement and

    735 Riverside Drive Jackson, Mississippi 39202 Phone: 601-718-4642. Christian B. Waddell, Esq. Balch & Bingham LLP 188 East Capitol St., Suite 1400 Jackson, MS 39201 Phone: 601.961.9900.

  9. [Leasehold] Deed of Trust, Assignment of Leases and Rents ...

    This template is a [Leasehold] Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing for use in an acquisition loan transaction to secure the payment of indebtedness and obligations of borrower under the loan by granting an interest to the lender in borrower's real property. This template includes practical ...

  10. PDF DEED OF TRUST WITH ASSIGNMENT OF RENTS

    The Settlement Agreement provides that the Debtor pay 60 equal installments to satisfy principal and interest and provides for the timing of these payments. All amounts due under the Settlement Agreement and this Security Instrument are called the "Debt". DEBTOR COVENANTS that Trustor is lawfully seized of the estate hereby conveyed and has ...

  11. What Is An Assignment of Rents Trust Deed?

    I will take a shot, but no real estate lawyer. In commercial loans in VA, our state is a deed of trust state. In a deed of trust, the borrower conveys title to a trustee to secure the loan but retains possession and beneficial ownership. Along with the deed of trust is a separate Assignment of Rents and Leases.

  12. Form of Deed of Trust, Assignment of Leases and Rents, Security Agreement

    This Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (this "Deed of Trust") executed to be effective as of October 10, 2007, by [NAME OF OWNER OF PLANT AND STATE AND TYPE OF ENTITY] ("Grantor"), having an organizational identification number of and an office at c/o TXU Corp., Energy Plaza, 1601 Bryan ...

  13. Saint Petersburg Leasehold Deed Of Trust Lawyers

    Compare Saint Petersburg Leasehold Deed Of Trust lawyers in Florida to save your money and time. $0 Recruiting Fee. Focus on your project, not hiring legal talent.

  14. Deed of Trust, Assignment of Leases and Rents, Security Agreement, and

    A deed of trust favoring the lender for use in a commercial real estate loan secured by one or more commercial real properties in California. This Standard Document assumes an accompanying loan agreement contains the business terms of the financing, including provisions setting out the events of default. This Standard Document is intended for a permanent term loan that the lender has fully ...

  15. Saint Petersburg Assignment Of Leases And Rents Lawyers

    Compare handpicked and vetted Saint Petersburg Assignment Of Leases And Rents lawyers in Florida to save your money and time. $0 Recruiting Fee. Focus on your project, not hiring legal talent.

  16. Saint Petersburg Assignment Of Leases And Rents Lawyers

    Find Saint Petersburg Assignment Of Leases And Rents lawyers in Florida to hire. No cost to post a project to get multiple bids in hours to compare before hiring.

  17. Deed of Trust, Security Agreement and Assignment of Leases and Rents

    THIS DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS (this "Instrument") is made and entered into as of this 29th day of August, 2012, by and among HC-2727 E. LEMMON AVENUE, LLC, a Delaware limited liability company ("Grantor"), having a mailing address of 4211 W. Boy Scout Boulevard, Tampa, Florida 33607, GARY S. FARMER, as trustee ("Trustee"), having a ...

  18. Deed of Trust, Assignment of Lease and Rents (Mississippi)

    this deed of trust covers goods which are or are to become fixtures, is effective as a financing statement filed as a fixture filing and is to be filed in the real estate records. this deed of trust, assignment of leases and rents, security agreement and fixture filing (this "deed of trust") is made and entered into as of

  19. Saint Petersburg Shredding

    Saint Petersburg Shredding - (727)286-3595. When it comes to Florida mobile shredding Legal Shred Inc. is the place to go. With the most advanced shredding equipment on the market today Legal Shred can visit your location and shred 10 boxes in 3 minutes.

  20. Deed of Trust and Absolute Assignment of Rents and Leases

    The parties to this DEED OF TRUST AND ABSOLUTE ASSIGNMENT OF RENTS AND LEASES AND SECURITY AGREEMENT (AND FIXTURE FILING) ( Deed of Trust ), dated as of January 29, 2007, are KBS CRESCENT GREEN, LLC, a Delaware limited liability company ( Trustor ), with a mailing address at 620 Newport Center Drive, Suite 1300, Newport Beach, California 92660 ...

  21. Deed of Trust, Assignment of Leases and Rents, Security Agreement and

    THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this Security Instrument ) is made as of this 13th day of June, 2012, by TNP SRT PORTFOLIO II, LLC, a Delaware limited liability company, having its principal place of business at 1900 Main Street, Suite 700, Irvine, California 92614, as Grantor ...