Daily Development for
Tuesday, March 31, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Thanks to Howard Lax of the Michigan Bar for this interesting case!!!

MORTGAGES; POSSESSION; PREMISES LIABILITY: Although lender erroneously orders borrower to vacate land and borrower sends key to lender, lender will not be regarded as having possession of the property for purposes of tort liability to third parties if lender's activities thereafter are limited to paying for utilities, maintaining insurance, and cooperating with broker originally retained by borrower to sell property.

Kubczak v. Chemical Bank Trust Co., Docket # 105735 (Mich. 3/24/98)

Borrowers were in default in paymenton their home mortgage and lender initiated and completed a judicial foreclosure action. Under Michigan law, foreclosed borrowers are entitled to remain in possession of the property during a statutory redemption period. This right can be waived, but only under separate agreement and for separate consideration. There was no such agreement here, but borrower's testimony revealed that when the lender obtained its sheriff's deed, a bank officer contacted borrowers and demanded that they either leave the premises or that he "would come over there personally and get you out. The lender denied that this exchange ever occurred.

The borrowers moved out of the house and into an apartment, at considerable personal expense. They sent the key in an envelope to the lender. Prior to the foreclosure, they had contracted with a broker to attempt to sell the house. The broker had obtained its own key from borrowers and kept it in a lockbox on the house. Subsequent to their moving out, they renewed that brokerage agreement. Ultimately, at a time after the running of the six month redemption statute, the broker indeed did sell the house for an amount slightly in excess of the lender's claim, and agreed to take as a commission everything but the amount that went to the lender and a tax lien.

When the borrower vacated the house, the lender asked the broker to check on the utilities, and ultimately undertook to have the the utilities transferred to it. The lender also carried the property on its insurance policy.

While the house was listed with the broker, and prior to expiration of the redemption period, an agent of the broker slipped and fell on an allegedly dangerously slippery garage floor. She brought suit against the lender, among others.

The trial court denied summary judgment for the lender.

On appeal: Held: reversed. (That's right - reversed.) The lender was entitled to summary judgment.

The court found that the lender had not taken possession of the premises. The court stated that the fact that the lender lacked any legal right to possession was not the question, and that actual dominion and control was the issue. But it concluded that the lender's acts in chasing the borrowers off the property were not actions toward the *property* and, although potentially actionable by the [borrowers] in their own right, are irrelevant to the instant issue of premises liability.

The court viewed the balance of the mortgagee's activities in buying insurance and maintaining the utilities as nothing more than the ordinary acts of a secured lender preserving the value of its collateral asset.

There was a ringing dissent from two judges who found it hard to credit the notion that the act of demanding that the borrowers vacate the property could not be a possessory act.

The apparent rationale of the Supreme Court was that liability should be based upon ability to control the condition of the premises, and the lender's actions did not manifest an undertaking of responsibility for the condition of the premises.

Comment 1:An incredible decision. The fundamental notion of possession is the assertion of the right to exclude others - and that is precisely what the lender did (we assume for purposes of summary judgment). As the lender had kicked out the borrowers, who but the lender was in a position to maintain the safety of the premises? Where the brokers in possession? Someone had to be. The court stipulated that there was no assertion that the property had been abandoned.

Comment 2: The only possible explanation, and it is hardly a sufficient one, is that the court flatly didn't believe the borrowers when they said that they had been expelled by the lender. But, as the dissent points out, there was no credible evidence to explain why else the borrowers would leave a premises where they could continue to reside for six months at no further cost to them and move to an apartment at considerable inconvenience and expense.

Comment 3: As the editor has commented on such amazing cases in the past - don't try this at home, kids.Most often a lender who asserts a right to control access to the premises will be regarded as the possessor, and as of that moment has potential premises liability. Under these circumstances, the first lender's agent to the property ought to be a safety engineer. This is particularly true where, as here, the property will regularly be visited by members of the public in connection with marketing efforts.

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