Alert

Alabama Supreme Court Clarifies Hold-Over Tenant Foreclosure Payment Rules

June 10, 2024

On May 31, 2024, the Alabama Supreme Court released its opinion in Crystal Kaye Coan v. Championship Property, LLC, SC-2023-0740. For the first time, the court held that a servicer and/or high bidder from a foreclosure sale can compel a hold-over tenant to make payments into court during the pendency of litigation over the propriety of foreclosure and/or ejectment. Prior to this decision, many trial courts were hesitant to grant such motions, and there was no clear guidance on a movant’s burden of proof.

Insights from the Majority Opinion

The majority opinion balanced the equities and affirmed the trial court’s order requiring Ms. Coan to make payments into court that were roughly equivalent to her prior mortgage payment. The majority recognized that Ms. Coan had not made a loan payment for many years before the foreclosure. It also noted that Championship had been paying a mortgage on the property, as well as taxes and insurance premiums.

Insurance and Significance to the Court

The court found that Championship’s homeowner’s insurer had decided not to continue insuring the property because Championship didn’t have a formal rental agreement with Ms. Coan. This fact appears to have been significant to the court.

Escrow Order and Injunctive Relief

Moreover, the majority expressly recognized that “[t]he escrow order essentially places no obligation on Coan that did not already exist.” In a concurring opinion joined by three other Justices, Justice Cook opined that the escrow order was actually a preliminary injunction requiring a specific act. Therefore, servicers and third-party purchasers moving to compel hold-over tenants to make payments into court should address the elements necessary to obtain injunctive relief in their motions.

Impact on Lenders, Servicers, and Foreclosure Purchasers

This decision goes a long way toward leveling the playing field for lenders, servicers, and foreclosure purchasers contending with hold-over tenants. If you have questions about how this clarification of the law affects your business, don’t hesitate to contact the authors or McGlinchey’s Financial Services Litigation team to discuss your options.