Deadbeat Banks Concerned They May Have to Pay Association Fees on Foreclosed Properties After Changing Locks

A decision of the Delaware Court of Common Pleas is worrisome for mortgage lenders. In 1401 Condominium Association v. Wells Fargo Bank, 2016 WL 1734104 (May 2, 2016), the court rejected Wells Fargo’s attempt to dismiss a condominium association’s claim that the bank should pay maintenance fees and assessments on a unit the bank foreclosed. The association characterizes the bank as the “owner” of the unit because after foreclosure, the bank had the apartment locks changed.

Here’s what happened: After Florine Hill, the owner of unit 1005, died in 2013, her estate failed to pay the outstanding mortgage. Wells Fargo foreclosed the mortgage in 2015 and changed the locks on the apartment. Wells paid the condo’s property taxes from Hill’s death until its foreclosure.

After the foreclosure sale, the 1401 condo association sued Wells Fargo for monthly maintenance fees and assessments on the unit totaling $9,000, plus attorneys’ fees, court costs and interest. The association argues the bank became the property owner when it changed the locks. Wells Fargo’s defense is based on the Delaware Common Interest Ownership Act (COIA), which expressly excepts a mortgagee from attaining ownership status, meaning it is not liable for the unit assessments and fees. The Delaware COIA provides that a unit owner does not include a person whose interest in a unit is solely as security for an obligation.

Rest here…