In a noteworthy decision for New Jersey lenders approved for publication, the New Jersey Appellate Division recently held that a lender who simply winterizes and secures an abandoned property in foreclosure is not deemed a mortgagee in possession subject to condominium association fees. See Woodlands Cmty. Ass’n, Inc. v. Mitchell, 2017 WL 2437036 (N.J. Super. Ct. App. Div. June 6, 2017). In Mitchell, the borrower defaulted on his loan with the lender and abandoned his condominium. The lender commenced a foreclosure action and then winterized the property and changed the locks. The condominium association then sued the borrower for unpaid association fees and later amended its complaint to include a claim against the lender, arguing that the lender was a mortgagee in possession of the property who therefore was responsible for the property’s fees. Both the lender and the association moved for summary judgment, and the trial court granted the association’s motion, holding that the lender was a mortgagee in possession because it “[held] the keys, and no one else can gain possession of the property without [the lender’s] consent. This constitutes exclusive control, which indicates the status of mortgagee in possession.”
On appeal, the Appellate Division reversed the lower court’s decision. Although the court agreed that a mortgagee in possession is liable for condominium charges that accrue for services rendered during the mortgagee’s possession and control of the property, it held that the lender here was not a mortgagee in possession because it did not “exercise[] the necessary level of control and management over the property.” Specifically, the lender took only the “minimal efforts” to secure its interest in the property. The Appellate Division further noted that the lender was not benefiting from its actions, but was simply protecting its rights to its collateral. Finally, the Court rejected the association’s unjust enrichment claim, holding that the association could not have expected remuneration from the lender because the lender was never a member of the association.
This case is good news for lenders who are often required by statute to maintain abandoned properties in foreclosure. Under N.J.S.A. § 40:48-2.12s, “[t]he governing body of any municipality may adopt ordinances to regulate the care, maintenance, security, and upkeep of the exterior of vacant and abandoned residential properties on which a summons and complaint in an action to foreclose has been filed.” Likewise, N.J.S.A. § 46:10B-51(b) holds that a lender foreclosing on an abandoned property in which there is an exterior nuisance or code violation “shall have the responsibility to abate the nuisance or correct the violation in the same manner and to the same extent as the title owner of the property, to such standard or specification as may be required by State law or municipal ordinance.” Thus, this decision allows a lender to protect its collateral and comply with these statutes without being assessed association fees.
For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com or Clarissa Gomez at cgomez@riker.com.
