When Is Possession Not Really Possession? (And By “Possession” I Mean In The “Mortgagee In Possession” Sense Of The Word)

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Lenders are often faced with a dilemma when dealing with property that is in foreclosure and has been abandoned by the borrower. A lender must, under New Jersey law, maintain the property "to such standard or specification as may be required by state law or municipal ordinance." Also, the lender has an obvious interest in protecting the value of its collateral. But the lender does not want to take "possession" of the property and be deemed a "mortgagee in possession," because that would impose upon the lender the duty of a "provident owner," which includes the duty to manage and preserve the property, and which subjects the lender to liability for damages to the property and damages arising out of torts that occur on the property. Unfortunately, the point at which a lender takes "possession" of property is not entirely clear. I have written about this before, and the Appellate Division's recent opinion in Woodlands Community Association, Inc. v. Mitchell provides some additional guidance, which should be helpful to lenders.

In Woodlands, defendant was the assignee of a note and mortgage related to a unit in plaintiff's condominium development. The unit owner defaulted on the loan and vacated the unit. At the time, the unit owner was not only delinquent on his loan payments, but also owed "substantial sums" to the association for "unpaid monthly fees and other condominium assessments." After the unit owner vacated the unit, defendant changed the locks and winterized the property. (As the Appellate Division noted, "[w]interizing entails draining the  pipes, turning off the water and setting the thermostat for heat to protect the pipes.") After the unite owner vacated the unit, plaintiff sued him to recover the delinquent fees. It later amended its complaint to include the lender, "alleging that [[the lender] was responsible for the association fees as it was in possession of the property."

Both parties moved for summary judgment. The trial court granted plaintiff's motion, holding that defendant was a mortgagee in possession and therefore was liable for the maintenance fees. On the key of issue of what it meant to be in "possession" of the unit, the trial court held as follows: "[D]efendant held the keys, and no one else [could] gain possession of the property without [defendant's] consent. This constitutes exclusive control, which indicates the status of mortgagee in possession." Defendant appealed. 

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Third Circuit: Neither You Nor Your Trust Have A Second Amendment Right To Own a Machine Gun (or Machinegun)

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

BillofrightsAlthough the Second Amendment is not a regular topic on this blog, the recent opinion from the US Court of Appeals for the Third Circuit in United States v. One (1) Palmetto State PA-15 Machinegun Receiver/Frame, Unknown Caliber Serial Number ("Watson") piqued my interest. That case, in addition to having one of the more cumbersome captions I have seen in a while, involved clever, albeit ultimately unsuccessful, legal arguments and a quirky grammatical/spelling issue, both of which made it "blog worthy."

First a little background about the law for the uninitiated (which included me until I read this decision). Under the National Firearms Act, before manufacturing a firearm, you have to apply for permission from the ATF. The ATF will deny the application if the firearm you intend to make would place you in violation of any law. For example, the Gun Control Act makes it, in most cases, unlawful for any "person" to "transfer or possess a machine gun," therefore the ATF would almost always deny your application to manufacture a machine gun. The Gun Control Act defines "person" as an "individual, corporation, company, association, firm, partnership, society, or joint stock company." This definition was at the heart of the debate in the Third Circuit's opinion.

 

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Appellate Division to Foreclosing Lenders: “Do Less” Because If You Do More You Might Make Yourself Liable For Damages

 by:  Peter J. Gallagher (@pjsgallagher)

 

There is a scene in the movie "Forgetting Sarah Marshall" where the main character goes to a surf instructor to teach him how to surf. The lesson is not that helpful because, among other things, the instructor gives the main character advice that is impossible to follow, like: "Don't do anything. Don't try to surf. Don't do it. The less you do the more you do." And, then later: "try less" and "do less."

I was reminded of this decision when I read the Appellate Division's recent opinion in McRoy v. Eskander. In that case, the Appellate Division held that a lender was not a mortgagee in possession and therefore could not be liable for injuries sustained by someone who slipped and fell on the sidewalk in front of the property. The reason the lender could not be deemed a mortgagee in possession was because it had done almost nothing to maintain the property in the 18 months after it obtained a final judgment of foreclosure.

In McRoy, plaintiff slipped and fell on snow and ice in front of a four-unit apartment building that was owned by Defendant Eskander. At the time of plaintiff's fall, however, the building had been vacant for approximately 18 months. Eskander had defaulted on his loan with Bank of America ("BofA"), which led BofA to foreclose on its mortgage on the property. BofA obtained final judgment of foreclosure but had not proceeded to a sheriff's sale at the time of plaintiff's fall. Once final judgment of foreclosure was entered, Eskander stopped maintaining the property. Except for performing yard work once, BofA did not maintain the property either. It did periodically inspect the property to ensure it was vacant and, to protect its collateral, it paid the real estate taxes and a water bill.

 

 

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Applebee’s Has No Duty To Warn You That Your Plate Of Smoking, Sizzling Fajitas Is Hot

by:  Peter J. Gallagher (@pjsgallagher)

In the interest of full disclosure, my family and I are frequent Applebee’s patrons. We have four kids, so casual dining is a staple of our dining out experience and there is an Applebee’s right near our house. We like Applebee’s food a great deal. Although I have never had the fajitas, it is hard to miss them when a waitress walks by with a loud, smoking plate of sizzling meat and vegetables that always inspires my kids to ask “what is that!”

With that confession out of the way, we turn to the recent Appellate Division decision in Jiminez v. Applebee’s Neighborhood Grill & Bar. In that case, plaintiff sued Applebee’s after he was injured while dining. Plaintiff, who was eating with his brother, ordered the fajitas and the waitress placed his plate — which plaintiff described as “sizzling,” “real dark,” “smoking,” and “real hot” — right in front of him. According to plaintiff, the waitress did not warn him that the plate was hot, but instead simply said “enjoy your meal.” Then this happened:

After the waitress walked away, [plaintiff’s brother] “reached over and said let’s have prayer.” Plaintiff bowed his head “[c]lose to the table.” Plaintiff said he heard a loud, sizzling noise, followed by “a pop noise,” and then felt a burning sensation in his left eye and on his face.

Plaintiff panicked, knocked his plate onto his lap and caused his prescription eye glasses to fall from his face. Plaintiff said he tried to push away from the table with his right arm. He used his left arm to brush the food from his lap. He soon felt that he had “pulled” something in his right arm. He stopped applying pressure to the table, “let [his] [right] hand go because [he] felt pain,” and “banged” his elbow on the table.

As a result of this incident, plaintiff sued, alleging that he was “injured as a result of defendants’ negligence when he came into contact with a dangerous and hazardous condition, specifically, ‘a plate of hot food.’” After discovery, defendants moved for summary judgment, arguing that, even if the fajitas were a dangerous or hazardous condition, they were entitled to summary judgment because the condition was open, obvious, and easily understood. The trial court agreed and granted the motion.

The Appellate Division affirmed. It noted that a business owner generally owes its invitees “a duty of reasonable . . . care to provide a safe environment for doing that which is within the scope of the invitation.” This duty requires the business owner to discover and eliminate dangerous conditions, to maintain the premises in safe condition, and to avoid creating unsafe conditions. In Jiminez, unlike most cases, the alleged dangerous condition was a “sizzling fajita platter,” nonetheless the Appellate Division analyzed it under the same general principles.

The Appellate Division held that, notwithstanding the general duty that a business owner owes its invitees, Applebee’s had no duty to warn plaintiff about the dangers associated with the fajitas because the risk was readily foreseeable to plaintiff. Specifically, the Appellate Division held that: the fajitas were “sizzling, smoking and ‘real hot’” when delivered to plaintiff; once delivered, Applebee’s had no control over the fajitas; and plaintiff had the “opportunity and ability to act to protect himself from any danger that it posed, since the danger was open and obvious.” Under these circumstances, the Appellate Division held that “imposition of a duty . . . to warn plaintiff of the danger presented by the sizzling hot platter [was] not required as a matter of fairness and sound policy.”

Another Lesson From A New Jersey Court On The UCC And Standing To Foreclose

by: Peter J. Gallagher (@pjsgallagher)

The running battle between lenders and borrowers over standing to foreclose continues in the Garden State. A recent decision from the Appellate Division — Bank of New York v. Ukpe — is the latest in an ever-growing body of case law addressing this issue from seemingly every conceivable angle. 

The facts in Ukpe will be familiar to anyone who has followed the wave of residential foreclosures in recent years. Defendants applied for a mortgage from Countrywide Home Loans, Inc. (“CHL”). They claimed that they told the broker that they could not afford a monthly payment over $1,000 and were assured by the broker that the monthly payment would not exceed this amount. However, at the closing, they learned that the monthly payment would be almost $1,500 per month. They alleged that the broker told them not to worry because they could refinance the loan a few months after closing. Nonetheless, two years later, after several unsuccessful attempts to refinance the loan, Defendants defaulted. 

Defendants’ note was made "payable to lender," and the mortgage, after it was recorded, was held by Mortgage Electric Recording System ("MERS") as nominee for the lender. Shortly after being recorded, the mortgage was securitized along with other mortgages. As part of this process, several entities entered into a "Pooling and Servicing Agreement" ("PSA"). Under the PSA, CHL was identified as a "seller," CWABS, Inc. was identified as the "depositor" and "master servicer," and the Bank of New York ("BNY") was identified as the "trustee." Under the PSA, the CHL and the other “sellers” transferred the mortgages to CWABS, Inc., which then transferred them to BNY, which held the mortgages for the benefit of the investors in the newly-created security. The PSA also required the original mortgage notes to be endorsed in blank and delivered to BNY.

After Defendants defaulted, BNY filed a foreclosure complaint. In response, Defendants claimed, among other things, that BNY lacked standing to foreclose because it was not a holder in due course. The trial court rejected this claim and the Appellate Division affirmed. In doing so, the Appellate Division provided a crash course in what it means to be a holder in due course.

 

 

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