Negligence Liability And The Lender Maintenance Requirement


1 October, 2016


Mortgage Lender and Servicer Alerts

One hundred eighty days from June 23, 2016 lenders will be bound to maintain any abandoned property upon which they hold a mortgage.  As of today, the maintenance obligation for an abandoned property (or one where tenants remain) becomes operable at the judgment of foreclosure and sale stage.  The serious problems and dangers foisted upon a foreclosing party by the current maintenance mandate have been the subject of some of our articles and are compiled at 3 Bergman on New York Mortgage Foreclosures §27.12, LexisNexis (rev. 2016):

Perhaps the most critical and portentous imposition of the mandate is negligence or tort liability upon the foreclosing party, underscored by a new case well worthy of noting. [Peoples v. M & T Bank, _A.D.3d_, 32 N.Y.S.3d 423 (4th Dept. 2016)]

This was a post-foreclosure suit where an individual as plaintiff sued a bank which had held a mortgage on premises where plaintiff alleged she was injured as a result of lead paint exposure.

The bank defended, arguing that as an out of possession mortgagee it owed no duty to the plaintiff during the period she alleged injury.  And by the time the bank became the owner – having been constrained to be the successful bidder at its own foreclosure sale – the plaintiff’s period of exposure ended.

The court ruled for the bank (which nonetheless incurred the cost of litigation – through an appeal no less to dispose of a baseless claim).

So it is a relatively agreeable ending for the lender, except for what it augurs as to likely maintenance related suits.

Yes, as an out of possession mortgagee, the mortgage holder could not be liable for tort damages at the mortgaged premises (lead paint exposure, fire injuries, falls, etc.).  But the maintenance mandate compels foreclosing parties to take control of mortgaged premises.  It is that suzerainity which then exposes the mortgage holder to liability; unwanted, unexpected, not contracted for.

The ultimate problem is that mortgage holders are, and proceed knowing, they will be out of possession (unless they volitionally elect to the contrary which is rare.)  They hold a lien – they are not owners.

The maintenance obligation changes the bedrock principle and the foundation expectation.  And that claimed injured parties are pleased to have perceived deep pocket lenders as parties defendant is obvious.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.