By Jonathan H. Katz, Esq.

Over the past ten or so years, community associations in New Jersey have struggled with delinquent owners who, for numerous reasons, have ignored their responsibility to pay their common expense assessments and, in some cases, abandoned their homes. Many of these homes sat (or still sit) vacant for years due to the fact that mortgage lenders did not – or for a few years were prohibited by the courts from – prosecuting mortgage foreclosure actions. Since we are only now starting to see some increasing movement with mortgage foreclosures and Sheriff’s sales, associations were required to find creative ways to collect these past due assessments.

When traditional collection methods failed, some associations opted to foreclose the assessment lien(s) on the delinquent homes. Some obtained authority to rent vacant homes with the assistance of a court-appointed receiver (rent receivers), when and if the courts were amenable to such remedy, which is not always the case. In other circumstances, where the mortgage lender changed the locks or winterized a home, associations sought to hold the mortgage lender responsible for the assessments, claiming that the lender was a “mortgagee in possession”; however, due to a recent published decision, that avenue to collect delinquent assessments has been prohibited in most cases.

On June 6, 2017, the Appellate Division issued a decision in Woodlands Community Association, Inc. v. Mitchell. That decision, which was approved for publication, held that a mortgage lender’s act of securing its interest in the unit (changing the locks and “winterizing” the unit) did not amount to possession and did not create a duty for the lender to pay the ongoing assessments due to the association.

The pertinent facts of the case are as follows: Adam Mitchell purchased a unit within the Woodlands Community Association in March 2007. Mitchell became delinquent in his assessments to the association and, when defaulted on his obligations under the mortgage and vacated the unit, the lender replaced the locks and “winterized” the unit (which entailed draining the pipes, turning off the water, and setting the thermostat for heat to protect the pipes).The Association instituted an action to collect the delinquent assessments from Mitchell and also included in that action a claim against the lender as a “mortgagee in possession.”

The trial court agreed with the Association that the lender’s actions were enough to demonstrate possession; however, on appeal, the Appellate Division overturned that ruling, finding that “possession,” under these circumstances, means dominion and control, which includes “elements of possession, operation, maintenance, use, repair, and control of the property such as paying bills or collecting rents.” The Appellate Division found that the “minimal efforts” taken by the mortgage lender in this case were only to “secure its interest in the mortgaged property” and were “not sufficient to convert itself into a mortgagee in possession.” In so holding, the Appellate Division distinguished the 2007 Appellate Division ruling in Woodview Condominium Association, Inc. v. Shanahan, which found that a lender who was renting out units and collecting rents was in control and possession of those units and, therefore, responsible for monthly condominium fees.

Put simply, this decision now makes it nearly impossible for a community association to hold a mortgage lender responsible for past due assessments unless the lender has taken additional action (as in the Woodview case) to rent the unit or to exercise some level of possession and control of the premises.

You can read the Appellate Division’s decision in Woodlands Community Association, Inc. v. Mitchell by clicking here.

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