NJ Court Opinion Regarding Mortgagee in Possession
By: Ashleigh Levy Marin
In New Jersey, condominium associations have been filing civil actions against foreclosing lenders of vacant units. In these actions, the associations are claiming that a lender becomes a mortgagee in possession once it secures and winterizes a vacant property, thereby becoming liable for outstanding maintenance fees and costs. While some lenders elect to quickly settle these cases where the dollar amount is diminutive, other lenders are taking a hardline approach and fighting against these claims.
In Union Hill Condominium Association v. Wells Fargo Bank, N.A, Wells Fargo’s decision to fight back has paid off in a hard-earned victory. There, the court ruled in favor of the mortgagee in a lengthy trial-court decision. The facts of this case were very typical of mortgagee-in-possession cases. The property became vacant during the pending foreclosure action. Wells Fargo then secured and winterized the property. Additionally, Wells Fargo undertook a few additional property preservation actions including basic landscaping and exterminating a stink bug infestation. The condominium association took the position that these steps were more than enough for the foreclosing lender to become a mortgagee in possession and therefore liable for the outstanding association fees and costs, including counsel fees beginning on the date that Wells Fargo secured the property.
The court found that the lender did not take possession of the property by securing and winterizing the property, and was therefore not liable for outstanding maintenance fees, late fees and counsel fees. The court noted that the lender was acting in accordance with both the mortgage documents and local ordinances when it undertook steps to secure and preserve the property. “To incent a lender to simply shirk its responsibility to assure the property is code compliant and/or allow the property to [deteriorate] or waste so as to avoid the circumstances where an Association will then brand the lender as a ‘mortgagee in possession’ is a policy that should be avoided. Neither part[y’s] interest is fostered by such a result. Not is that scenario in the public interest.”
This ruling is especially important as a contrary ruling could easily place foreclosing lenders in an unfortunate situation of knowingly exposing themselves to a mortgagee in possession status in order to comply with investor guidelines and local ordinances. Becoming a mortgagee in possession has much broader implications than simply becoming liable for monthly condominium association dues. A ruling in favor of the association would essentially confer a mortgagee in possession status to each and every vacant property in the state of New Jersey that a mortgagee has secured and winterized—not just condominiums. This is especially concerning because a mortgagee in possession may risk additional exposure in premises liability cases.
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