The Bank Can’t Just Walk in and Take Possession if You Miss Your Mortgage Payments

It occasionally happens that a homeowner who cannot afford their mortgage will simply abandon the property. Lenders often have a backlog of cases to address, so they do not always discover and foreclose on these loans. As a result, in states where it is allowed, they often include provisions in the mortgage allowing them to enter the property on default or in case of abandonment. A recent case from Washington, Jordan v. Nationstar Mortgage, LLC, No. 92081-8 (Wash., July 7, 2016), <http://www.courts.wa.gov/opinions/pdf/920818.pdf>, has, however, limited the ability of lenders to intervene without a court order.

Ms. Jordan bought a house in Wenatchee. Her lender assigned the loan to Fannie Mae, who contracted with Nationstar to service the loan. In January 2011, Ms. Jordan was unable to pay, and she defaulted. In March 2011, Nationstar changed the lock and left a notice stating the house had been found vacant and that Nationstar was taking custody to protect the mortgage holder’s interest. It was disputed whether Ms. Jordan was simply at work or had actually vacated. After obtaining the code to the lockbox, Ms. Jordan moved her belongings out of the house and left the house to Nationstar.

Ms. Jordan filed a class action against Nationstar, noting that 3,600 other homeowners in Washington had suffered similar lockouts without consent or court order. She alleged trespassing, breach of the trust deed, violations of Washington’s consumer protection law, and violation of the federal debt collection practices law. The claim of a federal violation allows the defendant to ask to have the case removed to federal court, which Nationstar requested. The federal court, in turn, decided that its decision would depend on two unresolved questions of Washington law, and took advantage of Washington’s law allowing federal courts to ask the Washington Supreme Court for a legal opinion.

The trust deed contains a provision allowing the lender to enter, maintain, and secure property before foreclosure. However, Washington state law does not allow a lender to take possession of a residence before foreclosure. This meant that the first, and most important, question was whether the act of changing the locks was an improper taking of possession.

Nationstar argued that it had not taken possession. The court disagreed. Ir ruled that by changing the locks for the purpose of securing the house and making repairs, Nationstar had taken control of the house. This was the key feature of possession. The demonstration of control was underscored by the fact that Nationstar provided a lockbox, but only made the code available to Ms. Jordan on her request. Based on this, the court ruled that the possession clause of the trust deed was prohibited by law.

As a result, the court ruled that the mortgage holder must have either consent from the borrower after default, or a court order, before taking possession, including changing locks.  A less important question was whether a law allowing for the appointment of a court-supervised receiver was the only method to get a court order; the court ruled that it was not, but did not go into detail as to other methods.

If you are a homeowner with a trust deed that includes a clause allowing the mortgage holder possession on default, you can rest assured that Washington does not allow lockouts or other acts to take possession without your consent or a court order.

If you are a mortgage holder and there is a default, and you want to protect the property, try to find the borrower first. You might be able to make repairs if it is clearly abandoned, but foreclosing first may be your best option if the borrower cannot be found.

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