By: James P. Krupka, Esq.

A recent United States District Court for the District of New Jersey decision has held that a foreclosing bank in possession of property may be found to have a duty similar to that of the prior owner with regard to the maintenance and inspection of the foreclosed property. This decision helps to protect people injured on vacant or occupied property previously foreclosed upon where the injured party may have previously had no recourse for the pain, suffering and economic loss sustained due to the negligent condition of property.

In Charlton v. Wells Fargo Bank, the plaintiff slipped and was injured while viewing a residential property with a realtor. At the time, the property was owned by Wells Fargo Bank and the house was vacant following the bank’s foreclosure. The Court held that a commercial lender that takes possession of residential property through a foreclosure takes the position of the owner and therefore the bank has a non-delegable duty to reasonably inspect the property. The Court held that the imposition of a duty under these circumstances requires a showing that the imposition of a duty “satisfies an abiding sense of basic fairness under all of the circumstances in light of considerations of public policy.” The factors to be weighed by the Court in determining whether a bank has a duty include the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care and the public interest in the imposition of the duty.

Some of the factors noted by the Court in finding that a duty may exist included the economic benefit received by the bank, the ability of the bank to either inspect the property or pay another to inspect the property and the fact that homeowners are in the best position to learn of and address any dangerous condition of the property. The Court further held that the imposition of a duty does not end the analysis; rather, a plaintiff must further demonstrate that the duty owed by the bank was actually breached. For example, a landowner is generally not liable for injuries caused by defects for which the owner has no actual or constructive notice and no reasonable opportunity to discover. If one can demonstrate that a foreclosing bank had actual or constructive notice of a defect on its foreclosed property, the bank can be held liable for injuries caused by the defect.