The “zombie” foreclosure crisis which has swept the nation, has hit New Jersey particularly hard. Zombie foreclosures generally refer to properties which have been in foreclosure and vacant for a significant period of time during the lender's foreclosure action. Those negatively affected by the crisis include community associations. This is because community associations where a unit is being foreclosed upon are not receiving maintenance assessments from the title owner, who has often abandoned the property. In many cases, lenders who have allegedly taken “possession” of the property during the course of the foreclosure, refuse to pay maintenance assessments claiming that they are not the title owner and therefore have no responsibility to pay such expenses. New Jersey courts have recognized that assessments are the “life blood” of community associations, since maintenance assessments are used to repair and maintain the common elements of the community, such as roofs, parking lots, etc. Thus, in a zombie foreclosure situation where there is no one paying maintenance assessments during the foreclosure process, the other residents of the community are absorbing the assessment costs of the unit that is being foreclosed upon. This can hit community associations hard, particularly since a lender foreclosure action takes many years to complete, and are often dismissed, reinstated, and are otherwise delayed for an extended period of time.
Community associations have filed actions against lenders on equitable and other grounds, contending that if a lender has taken “possession” of a property, it should be held liable for payment of maintenance assessments to the association, because it is effectively the “provident owner,” and is receiving the benefit of the maintenance of the common elements for the unit which they will eventually foreclose upon and sell at Sheriff's Sale. Numerous courts have addressed this “lender in possession” liability issue, with varying results. Courts that have heard this issue are generally in agreement that whether a lender is in “possession” of a condominium or other community association property is “fact sensitive,” and is to be determined on a case-by-case basis. Courts have had varying opinions as to what constitutes “possession.” Some courts have held that the lender's changing of locks and winterizing the property alone is enough for possession to exist. Other courts have determined that unless the lender is obtaining some “benefit,” such as receiving rental income in connection with its leasing of the property, lender in possession liability will not be found. Until such time as the New Jersey Supreme Court clarifies the issue, or unless the State Legislature passes legislation to more thoroughly define a lender's obligations under such circumstances, the zombie foreclosure crisis, and the “lender in possession” conundrum described above will continue to adversely affect community associations and other institutions that may be directly or otherwise indirectly impacted by the unclear state of the law as it currently exists.