The Alabama Supreme Court’s recent ruling in Coan v. Championship Property, LLC has significant implications for mortgage lenders, servicers, and foreclosure sale purchasers. The decision settles a contested issue: May trial courts require borrowers to make escrow-style payments pending a final judgment in a foreclosure or eviction dispute? Although the full extent of the ruling is not yet clear, Coan will be one tool in the kit of foreclosure sale purchasers – and perhaps servicers and lenders – to disincentivize borrowers from litigation delay tactics.
In Coan, the dispute arose following a foreclosure by the mortgagee, a subsequent sale to Championship Property, LLC (a third-party purchaser), and an ejectment action by Championship. The borrower in the case disputed both the foreclosure and the ejectment while remaining in the property without making any mortgage payments or maintaining hazard insurance. The trial court required the borrower to make monthly payments into the court registry during litigation. When the borrower failed to make those payments, the court found her in contempt and granted possession to Championship as a sanction.
The Alabama Supreme Court vacated the order awarding possession to Championship, concluding it was not an “appropriate” sanction for contempt. However, the court upheld the underlying order to make monthly payments as a proper exercise of the court’s equitable power to protect each party’s interests in the disputed property. Coan confirms that trial courts can impose a payment requirement – and presumably other interim measures – to safeguard the property before the court determines the merits of the claims.
Justice Greg Cook, in a concurrence joined by Justices Tom Parker, Sarah Stewart, and Jay Mitchell, agreed with the result but contended the payment order should have been entered as a preliminary injunction. That would require more specific findings from the trial court. Considering this opinion was just one vote short of a majority, parties active in the Alabama mortgage foreclosure market may want to consider the preliminary injunction process to shore up any Coan-stylepayment orders.
Arguably the biggest issue lenders and servicers should analyze going forward is whether Coan extends to cases where foreclosure has not yet occurred. The opinion does not answer this precise question, but some language provides support for trial courts to order payments from the borrower when equitable in other factual scenarios.
Coan may prove to be a game-changer for mortgage lenders, servicers, and foreclosure sale purchasers defending against unfounded borrower claims. The availability of court-ordered escrow payments following foreclosure should assist those stakeholders in protecting their interests in the property during litigation and reduce the previous incentive for borrowers to pursue baseless litigation as a method to stay in the property during and after foreclosure.