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When an Assignee is considered a “mortgagee in possession”

June 12, 2017 Posted in Community Association Law

An Appellate Division case, Woodlands Cmty. Ass’n v. Mitchell, 2017 N.J. Super LEXIS 67, was published on June 6, 2017. The court considered whether a lender’s assignee that takes possession of a condominium unit when the mortgagor defaulted on the loan, is considered a “mortgagee in possession” of the unit when the assignee winterizes and changes the locks and therefore responsible for the payment of the condominium fees and assessments. The Court held that winterizing the unit and changing the locks are “minimal actions” and do not deem the lender a “mortgagee in possession.”

 In this case, the condominium unit was purchased in 2007 by Defendant, Adam Mitchell and the property was managed by Plaintiff. In July 2013, the mortgage was assigned to Defendant, Nationstar Mortgage, LLC. Mitchell defaulted on his mortgage and vacated the unit. Additionally, he owed the Association for monthly fees and other condominium assessments. After the default, Nationstar winterized the unit and changed the locks.

The Association filed a lawsuit to recover the monthly maintenance fees and later amended the complaint to include Defendant, Nationstar. The trial court determined that the Defendant was the “mortgagee in possession.” On appeal, the Defendant argues that it is not the “mortgagee in possession” for merely changing the locks and winterizing the condominium.

 The Court stated that the determination of whether or not a mortgagee or assignee is in possession is on a case-by-case basis. The determination is based on whether the mortgagee or assignee had the “necessary level of control” over the property to be considered a “mortgagee in possession.” If the mortgagee is deemed to be in possession, then the mortgagee is liable for any condominium charges, which the property’s legal owner failed to pay.

In a prior case, Woodview, supra, 391 N.J. Super. 134, the Court held that a mortgagee was in control as it had rented out the unit and was collecting rent. Generally, control and management include possession, operation, maintenance, use, repair, and control of the property.

In this case, the Court held that the “minimal efforts taken” by Defendant are not sufficient to be considered a “mortgagee in possession.”  The Court found that the Defendant was protecting the value of its collateral and was preventing damage to the unit by winterizing the property and changing the locks. “Defendant here is not benefiting from the limited actions it has taken to secure its collateral; it is simply protecting its rights.” Woodlands Cmty. Ass’n v. Mitchell, 2017 N.J. Super LEXIS 67 at 7.

The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances.  Each legal matter is unique, and prior results do not guarantee a similar outcome.

 

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