Definition of Mortgagee in Possession
A Mortgagee in Possession refers to a scenario where a lender, typically a bank or financial institution, takes possession and control of a property after initiating foreclosure due to the borrower’s failure to meet the terms of the mortgage. In this position, the lender temporarily assumes all responsibilities and benefits associated with the property, including:
- Collecting rent or income generated by the property.
- Managing property maintenance and necessary repairs.
- Paying property-related expenses such as taxes and insurance.
- Holding the property until it is sold at the foreclosure sale.
This status aims to preserve the value of the property and secure it from damage or misuse until the foreclosure process is complete.
Examples of Mortgagee in Possession
Example 1:
A homeowner fails to make mortgage payments for over six months due to financial difficulties. After initiating foreclosure, the lending bank becomes the mortgagee in possession. They take control of the residence, ensure it’s well-maintained, and collect rental income until it is auctioned.
Example 2:
A commercial borrower defaults on a loan secured by a shopping center. The lender, fearing that the center might deteriorate or generate liabilities, takes possession of the property. They manage the daily operations, collect rent from tenants, and oversee repairs until the foreclosure process finalizes with a sale.
Frequently Asked Questions about Mortgagee in Possession
Q1: What is the purpose of a mortgagee in possession?
A1: The primary purpose is to protect the value of the property and ensure it generates income if possible, while awaiting the foreclosure sale. This also allows the lender to recoup as much of the owed debt as possible.
Q2: How long does a lender remain a mortgagee in possession?
A2: The lender stays in this position until the foreclosure process is complete and the property is sold. The timeframe can vary widely depending on legal procedures and market conditions.
Q3: What happens to the income collected by the lender during this period?
A3: Any income collected by the lender during this period is typically used to cover property-related expenses, and the remaining balance is applied to the unpaid mortgage debt.
Q4: Can the borrower regain possession of the property?
A4: In some cases, the borrower might be able to regain possession by curing the default, paying owed amounts, or through a workout or loan modification agreement with the lender.
Q5: Are there risks associated with a lender becoming a mortgagee in possession?
A5: Yes, lenders incurred risks such as potential liability for accidents or injuries on the property and costs associated with maintenance and repairs.
Related Terms
- Foreclosure: The legal process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the property used as collateral.
- Default: The failure to fulfill the legal obligations (or conditions) of a loan, such as not making the required payments.
- Real Estate Owned (REO): Properties owned by lenders (usually banks) that have not successfully sold at foreclosure auctions and thus remain on the lender’s books.
- Short Sale: The sale of a property for less than the balance remaining on the mortgage. It often occurs to avoid foreclosure.
Online Resources
References
- U.S. Department of Housing and Urban Development, “Avoiding Foreclosure,” www.hud.gov.
- Mortgage Bankers Association, “Foreclosure and Debt Collection,” www.mba.org.
- Real Estate Law: Principles & Practices by Erich Peter Copes.
Suggested Books for Further Studies
- “The Law of Real Estate Financing” by Baxter Dunaway.
- “Foreclosure Investing For Dummies” by Ralph R. Roberts.
- “Property Law: Rules, Policies, and Practices” by Joseph William Singer.
