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2.9 Improper Lockouts

The standard mortgage loan security instrument permits the lender to protect its interest in the property and its rights under the security agreement if the borrower defaults on the loan or abandons the property.150 The actions that a lender may take include protecting, assessing, repairing, and securing the property. By definition, to “secure” the property the lender may, among other things, enter the property to make reasonable repairs, change the locks, replace and board up windows and doors, winterize, shut off utilities, and eliminate building and other code violations.

As a practical matter, most mortgage servicers do not initiate property preservation activities until there is a determination that the property is abandoned. A payment default alone does not typically cause the lender to “secure” the property.151 Instead, a payment default triggers a property inspection to determine whether the property is occupied. The property inspection is often performed by a sub-subcontractor, who does little more than drive by the property. These inspectors earn just a few dollars per inspection, and volume rather than accuracy is a key driver of their business. As a result, an increasing number of properties have been incorrectly identified as abandoned. The improper designation that a property is abandoned may then lead to illegal break-ins, improper lock-outs, utility shut-offs, and the wrongful removal of personal property or property damage. These actions are typically taken on behalf of the mortgage servicer by subcontractors that specialize in property preservation, who often ignore clear signs that the property is occupied.152

One critical question is whether servicers can lock out borrowers, thereby taking possession of the property, prior to foreclosure. In Jordan v. Nationstar Mortgage, L.L.C.,153 the Supreme Court of Washington held in an en banc decision that the servicer’s act of replacing the locks effectively asserted possession and control over the property. The court further held that the provision in the standard deed of trust authorizing the lender to enter the property and change the locks upon borrower’s default irreconcilably conflicted with Washington state law prohibiting a lender from taking possession of property prior to foreclosure. As a result, the court concluded that the provision in the deed was unenforceable.

While the standard security instrument authorizes the servicer to change the locks on vacant or abandoned property, claims often turn on whether the servicer and its agents154 were justified in determining that the property was vacant.155 This determination is often a question of fact that will preclude dismissal at the pleading stage or summary judgment.

Footnotes

  • 150 {146} See Single-Family Fannie Mae/Freddie Mac Uniform Instrument ¶ 9 (Jan. 2001).

  • 151 {147} But see Lewis v. McCabe, Weisberg, & Conway, L.L.C., 2015 WL 1522840 (D. Md. Apr. 1, 2015) (bankruptcy combined with default justified servicer’s changing of locks under property preservation clause of security instrument).

  • 152 {148} One of the leading property preservation companies is Safeguard Properties, found on the web at www.safeguardproperties.com.

  • 153 {149} 374 P.3d 1195 (Wash. 2016) (en banc). See also Bund v. Safeguard Properties, L.L.C., 2016 WL 8738677 (W.D. Wash. Dec. 30, 2016) (denying motion to dismiss class action against property preservation contractor alleging claims for intentional trespass).

  • 154 {150} Parties may try to avoid liability by claiming that property inspection companies or those hired by these companies are independent contractors rather than agents. See § 11.4, infra.

  • 155 {151} Compare Swanson v. Bayview Loan Servicing, L.L.C., 2016 WL 3913602 (M.D. Fla. July 19, 2016) (borrower denied that property was abandoned and sufficiently alleged state debt collection claim based on lock-out), and Halkiotis v. WMC Mortg. Corp., 144 F. Supp. 3d 341 (D. Conn. 2015) (denying motion to dismiss trespass claim), and Njema v. Wells Fargo Bank, 124 F. Supp. 3d 852 (D. Minn. 2015), aff’d, 673 Fed. Appx. 609 (8th Cir. 2017), and Alden v. Seterus, Inc., 2013 WL 1326320 (D. Nev. Mar. 29, 2013) (denying summary judgment on trespass claim, but granting summary judgment against borrower on conversion and emotional distress claims), with Miller v. Nationstar Mortg., 2013 WL 12091325 (M.D. Fla. Apr. 10, 2013) (borrower failed to contest that the property was vacant when locks were changed), aff’d, 562 Fed. Appx. 929 (11th Cir. 2014).