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New Jersey: Appellate Court Finds a Mortgagee that Merely Secures and Winterizes an Abandoned Property is Not a “Mortgagee in Possession”

Posted By USFN, Tuesday, August 8, 2017
Updated: Friday, July 28, 2017

August 8, 2017

by Michael B. McNeil
Powers Kirn, L.L.C. – USFN Member (New Jersey)

In Woodlands Community Association, Inc. v. Mitchell, __ A.3d __ (App. Div. June 6, 2017), the appellate division of the New Jersey Superior Court recently clarified a point of ambiguity in the law by holding that a mortgagee that merely winterizes and secures an abandoned property by changing the locks is not a mortgagee in possession responsible for payment of condominium fees and assessments. In overturning a grant of summary judgment, the appellate court rejected the trial court’s reasoning (which has become popular among courts hearing these types of cases) that the mortgagee was in exclusive control of the property — such that it acquired the status of a mortgagee in possession — because it held the only known set of keys to the property.

The court also provided useful guidance by distinguishing the facts of two cases that are controlling on this subject. In Scott v. Hoboken Bank for Sav., 126 N.J.L. 294 (Sup. Ct. 1941), the mortgagee was found to be a mortgagee in possession where it had assumed control over the collection of rents from tenants and made repairs to the building. Similarly, the mortgagee in Woodview Condo. Ass’n, Inc. v. Shanahan, 391 N.J. Super. Ct. 170 (App. Div. 2007), was found to be a mortgagee in possession because it took it upon itself to rent out the mortgaged units and collected the rents.

By contrast, the court found that the mortgagee in the Mitchell case, who merely changed the locks and winterized the property, did not exercise sufficient control and management over the property to deem it a mortgagee in possession. The court went on to explain that the use of the word “possession” in “mortgagee in possession” is misleading, as the concepts of dominion and control over the property — e.g. operation, maintenance, use, repair, paying utility bills, and collecting rents — are more important in determining whether a mortgagee should be considered a mortgagee in possession than is the concept of possession of the property alone.

Finally, the court rejected the argument that the mortgagee should be responsible for the condominium fees and assessments under the equitable doctrines of unjust enrichment and quantum meruit. The court observed that the mortgagee was not a member of the condominium association and that the parties did not have an express contract for the provision of services by the association. The court also observed that the services furnished by the association were for the benefit of the entire condominium complex and the association members. Absent a determination that the mortgagee was a mortgagee in possession, the court saw no basis to find an implied contract to satisfy the equitable doctrines.

Following the Mitchell decision, a mortgagee must do more than merely winterize and secure an abandoned property by changing the locks to be considered a mortgagee in possession in the state of New Jersey. However, it remains to be seen how this decision will interplay with N.J.S.A. 46:10B-51 and similar municipal ordinances, which require mortgagees to abate local housing and building code violations for vacant and abandoned properties. At least for now, though, the court has provided some much needed clarity on a previously murky concept in the law.

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