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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More Courts Reject Eleventh-Hour Attempts To Avoid Foreclosure Based On An Alleged Lack Of Standing

by: Peter J. Gallagher

Two more Appellate Division panels have refused to allow defendant's in foreclosure lawsuits to raise standing as an eleventh-hour defense. As we previously reported — Changing Tide in Forclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute — there is now a clear trend against allowing defendants to stay silent in the face of a foreclosure lawsuit only to appear at the last minute, usually on the eve of a sheriff's sale, and seek to vacate final judgment based on an alleged lack of standing to foreclose. Two recent Appellate Division cases continue to bring this point home.

In IndyMac Bank FSB v. DeCastro, a residential borrower moved to vacate final judgment and dismiss the complaint 15 months after it was entered, arguing that he was not served with the complaint. The motion was denied. Defendant filed a second motion to vacate, arguing, for the first time, that the bank lacked standing to foreclose because it was not assigned the mortgage until after the complaint was filed. This motion was denied as untimely and defendant appealed. In an opinion, dated March 13, 2013, the Appellate Division affirmed. In its decision, among other things, the Appellate Division rejected defendant's standing argument, noting: "[W]e have now made clear that lack of standing is not a meritorious defense to a foreclosure complaint." Moreover, the Appellate Division held that defendant's standing argument was meritless "particularly given defendant's unexcused, years-long delay in asserting that defense or any other claim." In arriving at this decision, the Appellate Division relied on many of the cases discussed in our prior post.

Similarly, in WellsFargo Bank, N.A. v. Lopez, a different Appellate Division panel rejected another residential home owner's last-minute attempt to raise standing as a defense to the foreclosure complaint. The facts in that case were a bit more egregious because the borrower contributed to the four-year delay between the entry of default and the filing of his motion to vacate by filing numerous bankruptcy petitions and seeking a stay to attempt to short sell the property. Nonetheless, the Appellate Division affirmed the trial court's denial of the motion to vacate holding, among other things, that the lack of standing, even if true, was not a meritorious defense to a foreclosure complaint, particularly in the post-judgment context. Again, the Appellate Division relied primarily on the cases included in our prior post.

Changing Tide In Foreclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute

by: Peter J. Gallagher

In a series of recent decisions, New Jersey courts appear to be taking a stance against defendants raising, as a last-minute defense, that a party lacks standing to foreclose. This is good news for lenders and their assignees, who, prior to these decisions, faced the prospect of proceeding to final judgment of foreclosure, only to have a party appear at the last minute, allege a lack of standing to foreclose, and send the process back to square one.

The changing body of case law began with the Appellate Division’s opinion in Deutsche Bank Trust Company Americas v. Angeles, 428 N.J. Super. 315 (App. Div. 2013). In that case, defendant failed to defend the action or assert a standing issue until two years after default judgment was entered and more than three years after the complaint was filed. Id. at 316. Interestingly, the Appellate Division acknowledged that defendant raised a valid concern about plaintiff’s standing to foreclose, but nonetheless refused to vacate final judgment. In explaining its decision, the Appellate Division noted:

In foreclosure matters, equity must be applied to plaintiffs as well as defendants. Defendant did not raise the issue of standing until he had the advantage of many years of delay. Some delay stemmed from the New Jersey foreclosure system, other delay was afforded him through the equitable powers of the court, and additional delay resulted from plaintiff's attempt to amicably resolve the matter. Defendant at no time denied his responsibility for the debt incurred nor can he reasonably argue that [Plaintiff] is not the party legitimately in possession of the property. Rather, when all hope of further delay expired, after his home was sold and he was evicted, he made a last-ditch effort to relitigate the case. The trial court did not abuse its discretion in determining that defendant was not equitably entitled to vacate the judgment.

Id. at 320.

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