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Lending

Alabama court thinks landlords need more foreclosure protection

Could have huge impact on residential mortgages

foreclosure sign

Lawfirm Ballard Spahr is reporting that an Alabama federal court is suggesting that borrowers can allege invalid mortgage assignments — if a portion of the property has tenants.

In other words, the ruling could protect landlords from foreclosure.

There are some caveats.

Foremost, it needs to be a commercial mortgage loan. However, it could logiacally carry over to the residential sector, the law firm claims.

Also, in the case of ECP Financial II v. Ivey, there needs to be a claim of interfering with business.

"The guarantor alleged that the assignee lender had sent representatives to the premises and advised the tenants to begin making payments to a person or entity other than the borrower," the Mortgage Banking Update states. "In addition, the assignee published foreclosure notices and notified the debtor that it intended to foreclose, according to the counterclaims."

The court rejected the plaintiff's move to dismiss.

"While the court noted that it might be "unlikely" that the guarantor could ultimately prove that the assignment was invalid, the court found that the guarantor pleaded sufficient facts to survive the motion to dismiss," the update concluded.

Either way this one ends, the result could mean more litigation costs for lenders and servicers in the great state of Alabama.

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