MAR 8, 2012

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Federal court ruling validates servicers’ right to preserve properties


In a recent ruling, the 6th Circuit Court of Appeals determined that mortgage servicers have the right to protect and maintain their collateral interest in defaulted and foreclosed properties prior to the property going to sale—validating the work field service companies perform.

Field service companies, on behalf of servicers, inspect and maintain vacant properties. They complete work preserving the value of the properties in both pre-sale and post foreclosure sale, including property inspections, lawn maintenance, securing the property, winterizations, debris removal, clean-outs and maid services, among other services that enhance the marketability of the property.
In the case that prompted the unpublished opinion, Farinacci v. City of Garfield Heights (6th Cir. 2012), the mortgagor argued that the property preservation contractor did not have authority to give a third party (the city) consent for entry.
The mortgagor fell into default on her mortgage and moved out of her home, leaving behind almost all of her personal belongings, including several cats. The servicer hired a property preservation company to maintain the defaulted property. A contractor hired by the property preservation company contacted the city to have the cats removed from the home.
The city’s animal warden went to the home to assess the situation and place cat traps inside the house. No one from the city contacted the mortgagor or the servicer to verify the property preservation contractor’s authority nor did the mortgagor give direct permission to the city to enter the home.
The mortgagor filed a lawsuit against the city and several city employees alleging violations of her right to due process, violations of her Fourth Amendment right to be free of unreasonable searches and seizures, as well as claims for trespass, invasion of privacy, and intentional infliction of emotional distress under Ohio law.
The 6th Circuit struck down the mortgagor’s argument, stating:
“[The property preservation company] had authority to admit third parties based on the mortgage document itself, which provided in broad terms that the Bank, as the Lender “may do and pay for whatever is necessary to protect the value of the Property and Lender’s rights in the Property”….When [the mortgagor] signed her mortgage, which included the property preservation provisions, she expressly assumed the risk that, if it became necessary to preserve the property, the bank might permit its agents and others to enter the house to effectuate that purpose.”

This ruling supports the position that mortgage service companies have the lawful right to maintain their collateral interest in defaulted properties. This includes engaging field service companies and other third parties to inspect and maintain properties that have been vacated by the homeowner prior to the foreclosure sale.

Comments (3)
Now that an appellate court of competent jurisdiction has recognized a servicer's right to enforce the lender's right to preserve the collateral, would such rights be argued or deemed to implicate or include a legal obligation or responsibility to maintain such properties?
Posted by Steve Martinek | Tuesday, March 13 2012 at 12:33PM ET
Absolutley in my opinion.
Posted by Ron Scribner | Thursday, March 15 2012 at 11:19AM ET
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