Bugna

Secured creditor Federal National Mortgage Association (FNMA) claims it is entitled to certain rents from an apartment building pursuant to an “assignment of rents” clause in a trust deed encumbering the apartments. Borrower Randolph C. Bugna (Bugna) contends that FNMA was required by the trust deed to make a postdefault written demand for the rents, and that FNMA’s failure to make the demand bars FNMA from claiming the rents collected prior to a demand. FNMA contends that no demand was necessary and that the steps it took were adequate to entitle it to the rents. Bugna appeals the trial court’s ruling awarding the rents to FNMA.

I

Facts

A. The Loan

In 1986 Bugna borrowed $5,315,000, executed a note for the loan, and executed a trust deed encumbering an apartment building (the apartments) as security for the note. The provisions of paragraph 26 of the trust deed, assigning to lender the rents from the apartments, are critical to this dispute. Paragraph 26 provided in part:

B. The Bankruptcy Proceedings

In mid-1987 Bugna conveyed various properties, including the apartments, to his wife, Mary Bugna (Mary). In 1988 some of Bugna’s creditors filed an involuntary…