by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Today's comment, like yesterday's is by Reporter Harris Ominsky of the Blank, Rome firm in Philadelphia.
MORTGAGES; RECEIVERS: A lender can avoid the "strict accountability of a mortgagee-in-possession" by seeking a receiver. Changed Look Urban Renewal Development Corporation et al v. Avon Speedwash and First Fidelity Bank (Sup. Ct. NJ, App. Div. A-6859-93T1 (unpublished)). In the Changed Look case, the borrower alleged that Fidelity was responsible for mismanagement of the property because the court-appointed receiver was its agent. The borrower argued that Fidelity had become a mortgagee-in-possession because it had arranged for the receiver's appointment, consulted with the receiver during rent negotiations, had marketed the property for sale, and because the loan documents gave it the right to review and approve leases.
The court analyzed the somewhat inconsistent New Jersey cases on mortgagees-in-possession and concluded that the receiver acts not solely as the representative of the lender, but on behalf of all parties to the action. The court held that the bank merely acted as any prudent bank would to protect its financial investment and that was not enough to tar it with constructive possession or to make it liable for ownership obligations and responsibilities.
Reporter's Comment: In light of this case, lenders who wish to take management of a property out of the hands of a defaulting borrower should have more assurance they will not unduly expose themselves to liability merely because they appoint a rent receiver to collect rents and manage the property.
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