The property owner granted two mortgages on his multi-family apartment structure in Manchester to the bank in 2007. By 2010, the mortgages were in default, and the bank commenced foreclosure. The owner filed for bankruptcy, but that court lifted the automatic stay, and the bank scheduled a new sale. Before the sale could be conducted, a pipe burst, and the City turned off water and electricity to the building. The plaintiff in this case was a tenant, and after the owner refused to take steps to repair the structure, the plaintiff called the bank and sought assistance. The bank sent a representative who inspected the situation, but did not cause repairs to be made.
Shortly thereafter, the City declared the property to be uninhabitable, and the bank changed the locks to the outside doors and boarded up the entrances. In April, another foreclosure sale was conducted and the property was sold. Within a week, the plaintiff tenant was allowed to access the structure to regain his possessions, but he alleged that many of them were missing. The plaintiff sued the bank to recover his losses, alleging violations of the landlord tenant act, RSA 540, and for trespass into the structure. The trial court found for the defendant bank, reasoning that as it was not an “owner” of the property, it could not be liable as a landlord. The court further found that the bank’s mortgage interest created a sufficient property right for it to enter the property, and thus no trespass has occurred. This appeal followed.
The Supreme Court conducted an historical analysis of the New Hampshire law of mortgages, and observed that since 1846, the holders of mortgages (mortgagees) have not been regarded as the “owners” of land for any purpose other than to secure the promise to repay sums lent to the true owner (the mortgagor).
The plaintiff also alleged that the bank assumed duties toward him because the changing of the locks made it a “mortgagee in possession of the premises”. Under New Hampshire law, it is possible for the mortgagee to gain possession and title from a mortgagor who fails to repay the loan as promised. This “foreclosure” usually occurs by the exercise of a “power of sale” which is contained in the mortgage document. It may also occur by the mortgagee taking actual possession of the property with the consent of the mortgagor. The plaintiff tenant alleged that the bank assumed this status when it changed all of the locks and barred him from entry to the premises. The Supreme Court found this behavior was not enough to define the bank as a “mortgagee in possession” because it never sought to collect rent, and because it sought to end its relationship with the owner by exercising the power of sale in the mortgage document. The bank’s entry into the structure was in accordance with the mortgage document, and was only designed to prevent further harm and destruction of the value of the property. This entry was thus “privileged” and not an illegal trespass.
The case illustrates how complex the legal relationships between property owners, tenants, and holders of mortgages may become, and that it often requires litigation to sort out these legal relationships and the responsibilities the parties bear to one another. For municipalities, it is important not to become part of these interactions except when necessary to protect public health and safety, and even then to limit the actions to the minimum necessary to achieve that goal.