Lender’s Liability During Foreclosure

Lenders initiating foreclosure proceeding in the City of Boston and many other cities across Massachusetts can no longer shirk their responsibilities of maintaining vacant properties

By: Howard S Goldman, Esq.

As a result of the deteriorating economic climate in Massachusetts and nationwide, there has been a significant increase in the amount of foreclosure proceedings on residential properties, including condominium units.   A lender may initiate foreclosure proceedings in many ways; by taking possession of a property if the owner does not oppose such possession, by delivering a notice of intention to foreclose to a property owner, or by commencing a foreclosure action in court.[1]

During the foreclosure process, a property owner may abandon the property because he has no equity or stake in the ownership, leaving the lender in possession or control of the property.  However, the lender may be a large out of state institution which has no intention of maintaining the abandoned property and which has no local property manager to oversee its maintenance.   Lenders may even delay filing the appropriate foreclosure documentation with the local registry of the deeds in order to hide from these responsibilities.

This is where the problems arise.  Such unsightly units may be in violation of state and local building codes and sanitary codes.  In addition to possible code violations, vacated properties may also be susceptible to vandalism, unsafe and dangerous, contain litter and trash, have overgrown grass and bushes, unsecured swimming pools and unshoveled snow rendering walkways impassible.  These vacated properties could also be left unlocked or not properly secured leaving the properties susceptible to squatters, holdover tenants or others not legally entitled to occupy the property.  Property values in the condominium may become depressed and sales of other condominium units may be rendered impossible.

These problems become even more significant in the context of a condominium building.  For example, when a condominium unit owner abandons the condominium unit during the foreclosure process, the unit could be left unlocked allowing squatters to trespass on the property. The squatter could cause damage internally to the unit as well as the common areas of the condominium and obviously become a great safety concern to the other condominium unit owners.  Another example is when a condominium unit owner abandons the condominium unit and the utilities are subsequently disconnected when the utility bills are not paid.  In such a circumstance, the pipes within the unit could freeze and burst causing significant property damage not only to the individual unit but also to the entire condominium building.

The City of Boston and other municipalities across the Commonwealth have recognized the problems that arise with absentee lenders and have passed ordinances to make the foreclosing lenders accountable and responsible for the maintenance of the properties.

The City of Boston recently passed an ordinance which requires all owners of residential properties, including lending institutions who have initiated foreclosing activity, to register vacant and/or foreclosing residential properties, and to maintain the properties.[2]  The ordinance defines “owners” very broadly to include “every person, entity, service company, property manager or real estate broker, who alone or severally with others:  (1) has legal or equitable title to any [property]…; or (2) has care, charge or control of any [property]…; or (3) is a mortgagee in possession of any such property;  or (4) is an agent, trustee or other person appointed by the courts and vested with possession or control of any such property…”  A lender initiating foreclosure procedures may meet one or more of these definitions, especially if the lender has changed the locks to the abandoned unit and exercises control.

The City of Boston Council has directed its ordinance at lenders  as the ordinance’s specified the purpose is “to protect and preserve public safety, security and quiet enjoyment of occupants, abutters, and neighborhoods by (i) requiring all residential property owners, including lenders, trustees and service companies, to properly maintain vacant and/or foreclosed properties (ii) regulating the maintenance of vacant and/or foreclosing, residential properties to prevent blighted and unsecure residences.”[3] (emphasis added).

In essence, the ordinance provides a database of lenders foreclosing on properties and allows the City of Boston to hold such lenders responsible for the failure to properly maintain these properties.  More specifically, the ordinance provides, in part, the following requirements for owners and lenders in possession of mortgaged property:

  1. Owners must register vacant and/or foreclosing residential properties with the Commissioner of the Inspectional Services Department.  If the property is vacant, the owner/registrant must designate a local individual or management company responsible for the security and maintenance of the property and provide their contact information.
  2. If the property is in the process of foreclosure, the registration must be received within seven days of the initiation of the foreclosure process.  The initiation of the foreclosure process means taking any of the following actions on the property: (i) when a lender takes possession of a residential property pursuant to Massachusetts law; (ii) delivers the lender’s notice of intention to foreclose pursuant to Massachusetts law or (iii) commences any foreclosure action.
  3. Maintain the property in accordance with relevant Sanitary Codes, Building Codes and local regulations concerning external and/or visible maintenance. The owner, designated individual or management company must inspect and maintain the property on a monthly basis.  There must be a sign located on the front of the property which contains the name and 24 hour contact phone number of the designated individual or management company.  It is important to note that the ordinance provides that adherence to these maintenance requirements does not relieve the owner of any applicable obligations set forth in Code regulations, Covenant Conditions and Restrictions and/or Home Owner Association rules and regulations.

Several other cities and towns in Massachusetts have enacted similar ordinances, including Attleboro, Cambridge, Chelsea, Everett, Fall River, Gardner, Gloucester, Holyoke, Lawrence, Lowell, Lynn, Malden, Marlborough, Medford, Methuen, New Bedford, North Adams, Quincy, Randolph, Revere, Somerset, Springfield, Woburn, and Worcester.  In additional there are several bills pending in the State legislature.[4]

If you are a manager or trustee of a condominium building faced with a vacated unit in the process of foreclosure, consider do the following action to protect and preserve the unit:

1.         Send a demand notice to the lender requiring the lender to comply with applicable local ordinances to register vacant and/or foreclosing properties and maintain the properties in compliance with sanitary codes and building codes.

2.         Report violations of any sanitary codes or building codes for any vacant and/or foreclosing property to the local building inspection department and provide them with the foreclosing lender’s contact information.

3.         Seek legal action in local courts requesting equitable relief for a lender’s failure to comply with sanitary codes and/or building codes and/or requesting an order that the lender properly maintain the property.  A temporary restraining order can be sought in emergency situations, such as lack of heat or failure to maintain smoke alarms, and a preliminary injunction may be sought in nonemergency situations.  In connection with such an action, you may also request treble damages and attorney’s fees pursuant to M.G.L.c. 93A for a lender’s failure to maintain a property in accordance with relevant sanitary codes and/or building codes that appears to constitute and unfair and deceptive trade practice.

In summary, if a condominium unit has been abandoned or neglected and the mortgage holder has taken steps to foreclose, such mortgagee has express obligations, under various local ordinances and under case precedent, to maintain such unit in a safe and habitable condition.  Prompt action will preserve property values and hopefully prevent serious damage to the remaining units.

About the Author

Attorney Howard S. Goldman is the founding partner of the law firm of Goldman & Pease LLC, 160 Gould Street, Needham, Massachusetts 02494 (781) 292-1080.  Mr. Goldman concentrates his practice in the areas of real estate law and civil litigation, where he represents property managers, condominium associations, unit owners, developers and contractors for over twenty-seven years. He is an active member of the Massachusetts, Norfolk, and Rhode Island Bar Associations in his field and is also an active member of CAI and IREM, where he frequently lectures and writes columns affecting the real estate industry.  Mr. Goldman serves as a member of the Zoning Board of Appeals for the Town of Needham and as a court appointed case conferencer at the Boston Municipal Court.

Recently, Mr. Goldman obtained a $12 million dollar jury verdict against the wrongdoer in a negligence action.


[1]See  M.G.L. c. 244 §§1 and 17B.

[2] The Ordinance, entitled Maintenance of Vacant, Foreclosing Residential Properties, is available at http://www.cityofboston.gov/isd/foreclosure/pdfs/foreclosureord.pdf

[3] Id.

[4] A list of local ordinances governing the maintenance of foreclosed properties is currently managed by the Mortgage Electronic Registration System and is available at http://www2.safeguardproperties.com/vpr/city.