October 13, 2014
by Bruce J. Bergman
Berkman, Henoch, Peterson & Peddy, P.C. – USFN Member (New York)
The title suggests what seems to be an odd notion, but mortgage lenders and servicers can confirm that they are sued on occasion by someone claiming: either to have been injured at the mortgaged property, or to have suffered damage to adjoining property resulting from conditions at the mortgaged property. That the lender or servicer, typically, need not worry about losing such a claim is tangentially confirmed by a new case, Koch v. Drayer Marine Corporation, 118 A.D.3d 1300, 988 N.Y.S.2d 233 (4th Dept. 2014). Nonetheless, there might yet be cause for concern — so perhaps a dual lesson here.
It should be observed that if a lender has become a mortgagee-in-possession (although that is a right rarely invoked), it might then indeed be liable for injuries at the property. That aside, the law has always been clear (albeit somewhat obscure) that a lender would need to have exercised some degree of care, custody, and control over the property to be liable for torts. This is generally not applicable to a mere mortgage holder. [For a more expansive review of this concept with case citations, attention is invited to 1 Bergman on New York Mortgage Foreclosures, § 2.24, LexisNexis Matthew Bender (rev. 2014.)]
While the Koch case isn’t the precise fact pattern, it does aptly underscore the critical point. In the case, the property involved was a marina. A man sued the borrower/owner of the property, claiming he was injured with a plank that collapsed while he was fishing from the dock. The owner, who was in foreclosure, contended that the “Judgment of Foreclosure and Sale” in the foreclosure action extinguished ownership so that it could not be liable.
The court disagreed: a judgment does not divest title; only the foreclosure sale does. However, the borrower/owner showed that shortly after the foreclosure was begun, she and her staff put the boats in storage, and thereafter never had any further contact with the premises. In addition, the foreclosing bank denied access to the owner to remove the boats from storage for the summer season, barred the owner from sending rental renewals to customers, and hired another marina operator to take over. This established that the borrower/owner no longer possessed, maintained, or controlled the marina.
The applicable principle of law is that “an out-of-possession title holder lacking control over the property is not liable for injuries occurring thereon.” It is this maxim that protects a lender who is merely the holder of a mortgage, and not in possession. I will leave you with these two points: (1) A lender or servicer without care, custody, and control of mortgaged premises is not liable for injuries occurring there; (2) Watch out for the consequences if the lender or servicer does exercise that care, custody, and control — and, at the very least, insurance will be needed to protect against injury claims.
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