Condominium and Homeowner associations face another setback to their financial stability due to the decision by the New Jersey Appellate Division in the case Deutsche Bank National Trust Co. v. Mitchell, A-4925-09. In this ruling, the Appellate Division stated that in residential foreclosure cases, the mortgage lender must provide evidence that it actually possesses the mortgage note or an assignment of this mortgage note before it files the foreclosure complaint. The Court stated, “If Plaintiff did not have the note when it filed the original complaint, it lacked standing to do so, and it could not obtain standing by filing an amended complaint.” The Appellate Court cited to the case of Wells Fargo Bank v. Ford, 418 N.J.Supr. 592 (App. Div.2011), which held that a party seeking to foreclose a mortgage must own or control the underlying debt.
The Appellate Division’s ruling is based on logical, reasonable and equitable grounds. However, the practical results will likely be additional challenges to the thousands of currently pending foreclosure actions. This will have the negative impact on condominium and homeowner associations that are awaiting the finalization of foreclosure actions by mortgage companies against delinquent homeowners. Almost every community association is waiting for mortgage companies to foreclosure the mortgage notes and conduct sheriff sales, thereby either taking direct control of the units or selling them to third-parties who will then come in and pay the ongoing maintenance assessments. Community associations have found that any delay in this process further costs the association several months worth of maintenance assessments as the delinquent owner has little incentive or ability to pay assessments during the mortgage foreclosure. However, the community association does have several collection strategies available to it that can be put into place to lessen the effect of this further delay, that actually take advantage of these delays.