Pope v. Johnson

96-5364 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)
  • Opinion Date: January 20, 1999

MORTGAGES; RECEIVERS; LIABILITY—A custodial receiver in foreclosure proceedings holds the property for the benefit of all parties to the action, and therefore isn’t an agent of the mortgagee; consequently, such a mortgagee is not a mortgagee in possession.

Parents brought an action against a number of parties alleging that their son had been poisoned by lead paint in the residence that they rented. The parents’ expert testified that the lead exposure occurred sometime before November, 1991 and not after that date. One of the claims was against a mortgagee that began foreclosure proceedings on February 7, 1991 and at whose request a receiver was appointed on September 5, 1991. The parents alleged the lender was a mortgagee in possession of the property, from the date upon which the receiver was appointed, if not from the date when the foreclosure proceedings were initiated. The parents also argued that the receiver was acting as an agent of the lender, and therefore the lender was in possession when its receiver was in place. The Court rejected those claims. The initiation of foreclosure proceedings by a mortgagee does not constitute entry or taking possession. Once the mortgagor defaults in performance, the mortgagee has the right of possession but is not required to assert it. Rather, the mortgagee must take an affirmative action to acquire possession. Accordingly, the lender’s initiation of foreclosure proceedings did not constitute an affirmative act of possession. Further, in order for a mortgage holder to be a mortgagee in possession, it must have actual possession, or where the tenant has actual possession, constructive possession. Possession, in this sense, means dominion, management, and control. Here, the lender did not have actual possession because the tenant had actual possession. The evidence also showed that the lender did not have constructive possession of the property because it did not assert any dominion, management or control over the property whatsoever. Rather, it submitted an application to the court to appoint a receiver, and one was appointed. Under New Jersey Law, custodial receivers in foreclosure proceedings hold possession of the property. When a receiver is appointed, the possession of the mortgaged property is transferred from the owner to the receiver “for the benefit of the parties to the action who afterwards appear to be entitled to the rents. . The receiver does not simply represent the mortgagee securing his appointment but represents all parties to the action. The receiver is an arm or officer of the court for the benefit of all parties to the action.” Thus, the receiver was not an agent of the mortgagee. Consequently, the lender was not a mortgagee in possession of the property at the time that the infant was allegedly exposed to the lead.