• Blame It on the Bank? Defending Mortgage Lenders in Premises Liability Cases
  • May 29, 2014 | Author: Joanna D. Buchanico
  • Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Philadelphia Office
  • Key Points: 

    • In premises liability cases, when the subject property is in foreclosure, Pennsylvania courts have established that plaintiffs’ right to recovery against mortgage lenders is limited, if not completely precluded.

    • There can be no duty for a lender to maintain a mortgaged property unless they actually control or possess the property.

    While the country’s mortgage crisis is waning, banks and lenders now are facing a growing litigation trend—defending themselves in premises liability cases when the subject property is in foreclosure. When dealing with landowner defendants with limited assets, plaintiffs are now turning to the lenders for recovery. However, Pennsylvania courts have established that plaintiffs’ rights to recovery against lenders is limited, if not completely precluded.

    Any action in negligence is premised upon the existence of a duty owed by one party to another. Wenrick v. Schloemann - Siemag A.G., 564 A.2d 1244, 1248 (Pa. 1989). Before a person may be subject to liability for failing to act in a given situation, it must be established that the person has a duty to act; if no care is due, it is meaningless to assert that a person failed to act with due care. The existence of a duty is a matter of law for the court, not the jury, to determine. Brisbine v. Outside in Sch. of Experiential Educ., Inc., 799 A.2d 89, 93 (Pa. Super. 2002). “Where there is no duty of care, there can be no negligence.” T.A. v. Allen (Appeal of Allen), 669 A.2d 360, 362 (Pa. Super. 1995).

    In Pennsylvania premises liability cases, it is the possessor of property who owes a duty towards third persons entering his or her land. See, Palange v. City of Philadelphia, 640 A.2d 1305, 1308 (Pa. Super 1994). In order for premises liability to attach, a plaintiff must establish that a defendant was the possessor of the subject property where the plaintiff’s alleged injuries occurred. Rudy v. A-Best Products Company, 870 A.2d 330, 333 (Pa. Super 2005).

    In Pennsylvania, §343 of the Restatement (2nd) of Torts sets forth the duty owed by a possessor of land to invitees. See, Zito v. Merit Outlet Stores, 647 A.2d 573, 574 (Pa. Super 1994). “A possessor of land is one ‘who is in occupation of land with intent to control it.’” Rudy v. A-Best Products Company, 870 A.2d 330, 333 (Pa. Super 2005) (citing Restatement (Second) of Torts § 328E).

    For mortgaged properties, “the borrower is the property owner, even of legal title.” A mortgage is merely security for a debt. Bulgur v. Wilderman, et al., 101 Pa. Super. 168, 171 (1931). The borrower/owner, or tenant in possession, is responsible for the mortgaged property’s condition and has the duty to repair the property. Sansotta v. City of Pittsburgh, 199 A. 164, 165 (Pa. 1938); Zisman v. City of Duquesne, 18 A.2d 95, 97 (Pa. Super. 1941). A lender cannot be liable to third persons in tort for failure to properly maintain the mortgaged premises unless the lender had actual control and possession of the property. Welz v. Wong, 605 A.2d 368, 372 (Pa. Super. 1992). A lender’s “right to possession” means nothing to a third party. Only actual possession has any significance, and that requires the lender’s overt act. Dubin v. City of Phila., et al., 34 Pa. D & C. 61, 67-68 (Phila. C.C.P. 1938).

    Case law is limited on what is considered an “overt act” of possession, and the majority of those cases deal with rental properties. But the consensus is that the following actions by a lender would be considered actual possession:

    • Collection of tenants’ rent;
    • Application of rent to payment of taxes;
    • Property inspection; and
    • Conducting repairs or property maintenance.

    See, Zisman, 18 A.2d at 97; Dubin v. City of Phila., et al., 34 Pa. D & C. at 70.

    Plaintiffs might also try to argue that a lender is in actual possession of a property if the lender initiated foreclosure proceedings or if a default judgment was granted in foreclosure proceedings. However, Pennsylvania law protects a borrower’s right to possess their home to a great extent. If a default judgment is entered, borrowers have the right to file a petition to open the default judgment. Further, even if such a petition is denied, under the Loan Interest and Protection Law (Act 6), Pennsylvania homeowners in default have the right to “cure” a mortgage (i.e., restore the mortgage “to the same position as if the default had not occurred”) up to one hour before a Sheriff’s sale. 41 P.S. § 404. Therefore, a lender defendant in Pennsylvania could argue that, without any other overt act, they cannot be found to have possession and control of the subject property until one hour before a Sheriff’s sale.

    This exact issue recently arose in Byrd v. Johnson, Phila. C.C.P. No. 130303967 (Jan. 28, 2014), in which the plaintiff alleged she sustained injuries after a March 28, 2011, trip and fall on a sidewalk adjacent to a property owned by Barbara Johnson. The property was subject to a reverse mortgage with MetLife Home Loans. Per the terms of the reverse mortgage agreement, payment in full was due to MetLife if Johnson died or if the property ceased to be Johnson’s principal residence. In 2010, MetLife was informed that Johnson no longer resided at the property, and, therefore, payment in full of the mortgage was due to MetLife. Because Johnson failed to pay, MetLife sent Johnson a Combined Notice of Delinquency and initiated foreclosure proceedings. A default judgment was entered against Johnson, and the property was sold by Sheriff’s Sale on November 1, 2011. MetLife filed a motion for summary judgment, stating that Byrd presented no evidence that MetLife overtly controlled or possessed the subject property at the time of her accident, and that under Act 6, Johnson’s ownership of the property did not cease until one hour before the November 1, 2011, Sheriff’s Sale—eight months after the accident. The court granted MetLife’s motion for summary judgment and dismissed them from the case with prejudice.

    While it may be easy to blame the bank, there can be no duty for a lender to maintain a mortgaged property unless they actually control or possess the property. Further, even if they are not paying their mortgage, Pennsylvania borrowers can retain control of their property up to one hour before a Sheriff’s Sale—putting plaintiff’s premises liability claims against a mortgage lender on “borrowed” time.