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U.S. Court: No Lender Property Preservation Duty Following Default

gavelThe United States Court of Appeals for the Second Circuit has affirmed in a recent ruling that a lender has no duty to safeguard a property following a default. According to the Court ruling on Malick v. JP Morgan Chase Bank, N.A., et al., a defendant lender and its property preservation company did not owe the plaintiff homeowner a duty to act to prevent theft or damage to his property, Troutman Sanders stated.

Troutman Sanders Counsel S. Mohsin Reza notes that owner Abu Hashem W.Q. Malick obtained a home mortgage loan on his property, and a few months later, he defaulted on his loan.

After the Malick sued the lender and the property preservation company for conversion, negligence, and violations of the Connecticut Unfair Trade Practices Act in 2007, the Second Circuit affirmed the lower court’s ruling that the lender never converted Malick’s property. The Court also found that Malick’s negligence claim failed because he did not establish that the defendants owed any duty to him to act to prevent theft or damage to the property.

Instead, the mortgage expressly placed a duty on the plaintiff homeowner to maintain the property, stating “[w]hether or not Borrower is residing in the Property, Borrower shall maintain the Property in order to prevent the Property from deteriorating or decreasing in value due to its condition.” Further, the mortgage provided that “although the Lender may take action [to protect, secure, and repair the Property, Lender does not have to do so and is not under any duty or obligation to do so.”

The Court found that the defendants’ actions “cannot reasonably be said to be ‘abusive, harassing, fraudulent, deceptive, or misleading, since the Mortgage Deed explicitly authorized them.” The Court also rejected Malick’s alleged emotional damages, determining that emotional harm is not enough to establish a loss under CUPTA.

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.

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