When Can They Sue The Lender For An Accident At The Property?

The title of this alert seems like a bizarre question; the answer should be “never”.  A mortgagee has a lien on the mortgaged premises – not an ownership interest and not possession.  But in many cases, the foreclosure action proceeds to a conclusion and then the foreclosing party just might become the new owner (as much as they would not prefer that).  And an owner could be liable for injuries incurred at the premises based upon negligence.

So, one ultimate question is, when does the owner/mortgagor lose his title?  As a new case confirms, not when the judgment of foreclosure and sale issues.  [Forbes v. Aaron, 81 A.D.3d 876, 918 N.Y.S.2d 118 )2d Dept. 2011)]

What the case ruled – and again it is not new – is that entry of a foreclosure judgment does not divest the borrower of his title until the sale is actually conducted.  (In turn, that means the auction sale, the moment the property is struck down by the referee.)

If this is not a revolutionary ruling, why is it being litigated again, at an appeals court level no less?  The answer is that the subject is simply not that well understood by litigants generally.  The result is that the issue is raised with some regularity and the message needs to be conveyed by the courts on a repeated basis.

There is another reason though, which is that the judgment of foreclosure and sale by its own terms speaks of extinguishing the rights of all parties to the action as to the mortgaged premises.  What confuses the uninitiated is the perhaps philosophical point that such language in the judgment does not mean it is effective when the judgment is signed, but rather when the judgment comes to fruition through the auction sale of the property.

All this leads to a next level of inquiry not necessarily related to the new case.  Even when a lender may become the successful bidder at the sale, it does not at the moment of the successful auction gain a possessory interest in the property.  It would first need a deed and then would need to gain possession from any holdovers at the premises through employment of legal means.  This is a process which could take weeks or, most often, months or even more.  Until the new owner gains what is called care, custody and control of the property, it does not have the dominion over the property needed for it to be liable for negligence.  In other words, if it cannot attend to making the property safe, it cannot be liable for conditions leading to injuries over which it had no control.

In the end, lenders may indeed be sued from time to time for torts at mortgaged premises, but it doesn’t mean they are liable.

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.