This happens from time to time and lenders who have been sued know the problem: someone is injured (or claims to have been hurt) at the premises burdened by a mortgage. It could be a trip and fall on the entrance steps – or anywhere on the property or in the building – or an injury resulting from a fire, or any number of infinite events which are the subject of accident cases. In addition to whoever else they sue, they name the mortgage holder or servicer, maybe both. (For the purpose of this discussion, let’s call the mortgage holder or the servicer the “lender”.)
Can the lender be liable? The short answer is “no” unless the lender actually owned the property and had control over it. A new case touches on this which elicits the alert. [Forbes v. Aaron, ____ Misc. 3d ____, 897, N.Y.S. 2d 849 (Sup. Ct. 2010)].
First we can examine the most typical instances when a lender is sued for an accident at the mortgaged premises. The scenarios can vary, but as it relates to the legal principle they are essentially the same. One situation is where the foreclosure auction sale has been held, the lender has bid in, but no deed has yet been delivered. In this case, although the lender has what is referred to as “equitable title”, until a deed is delivered, which allows the lender to evict anyone who is there and obtain legal possession of the property, that lender does not have what is called care, custody and control. If it cannot attend to any dangerous conditions at the property (because it doesn’t control it) then it cannot be liable for negligence.
A variation of this fact pattern is where the lender has received the deed but, having either not yet begun, or not yet completed an eviction, still has no care, custody and control over the property. Therefore, it likewise cannot be liable.
A third version of this is that the lender has bid in but then assigns its bid to a third party. Although the lender was for a certain period of time the successful bidder, it still did not have care, custody and control and so if the lender is named in a negligence action, it cannot be liable.
In the new case mentioned, the accident took place before the foreclosure sale. There, the plaintiff allegedly tripped on the sidewalk in front of the premises being foreclosed upon on March 1, 2008. The judgment of foreclosure and sale had been granted on December 11, 2007, but the foreclosure sale did not occur until August 14, 2008, when it was sold to the foreclosing plaintiff. The deed issued on the date of the sale.
The injured party tried to claim that somehow the lender was an “equity owner” during the time period between issuance of the judgment and the actual sale of the property. This assertion was based upon the fact that the lender had paid New York City taxes and property preservation fees. The actuality, of course, was that the lender was not the owner of the property at the time the accident took place (it was in the middle of a foreclosure) nor, as the court ruled, did the payment of taxes create some equitable duty to repair on the part of the lender plaintiff. The ultimate legal point was that the judgment of foreclosure and sale does not divest an owner of title. So here, the defaulting borrower was the owner of the property and if anyone would be liable for the negligence it was that person.
We have here a rare comfort for lenders.
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.