by Nicole M. FitzGerald, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, ME, VT)

In a recent ruling, the United States Court of Appeals for the Second Circuit affirmed that a lender has no duty to safeguard a property following a default; rather the borrower does. According to the Court ruling in Malick v. JP Morgan Chase Bank, N.A., et al., 2019 WL 6724402 (2019), a lender and its property preservation company did not owe the borrower/mortgagor a duty to act to prevent theft or damage to his property.

After obtaining a mortgage in June of 2007, which was subsequently acquired by JP Morgan Chase Bank, N.A. (the “Lender”), the borrower/mortgagor (“Malick”) defaulted approximately a year later.  Shortly thereafter, the property became unoccupied due to Malick’s (unrelated) incarceration.  While the property was vacant, the Lender, through its property preservation company, changed the locks and otherwise attempted to secure the property due to the vacancy, neglect and theft.

After Malick sued the Lender and the property preservation company for conversion, negligence, and violations of the Connecticut Fair Debt Collection Practices Act and the Connecticut Unfair Trade Practices Act, the Second Circuit affirmed the lower court’s ruling dismissing all of Malick’s claims. 

The Court found that the mortgage expressly placed a duty on Malick to maintain the property, directly quoting the mortgage: “Whether or not Borrower is residing in the Property, Borrower shall maintain the Property in order to prevent the Property from deteriorating or decreasing in value due to its condition.”  Further, the mortgage provided that “although the Lender may take action [to protect, secure, and repair the Property], Lender does not have to do so and is not under any duty or obligation to do so.” (emphasis added).

The Court also affirmed the lower court’s ruling that Malick had failed to comply with the covenants and agreements in the mortgage and had “abandoned” the property which therefore entitled the Lender to “do and pay for whatever is reasonable and appropriate” to protect its interest in the Property, including “protecting and/or assessing the value of the Property, and securing and/or repairing the Property.”

In the increasing climate of vacant properties and priority blight liens, this is a small victory for lenders. 

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February USFN e-Update