Borrower’s Conversion Lawsuit Continues

Read the full decision: Mwangi v. Fed. Nat'l Mortgage Ass'n, No. 4:14-CV-0079-HLM, 2016 WL 770818 (N.D. Ga. Feb. 16, 2016)

A Georgia federal court has considered whether a former homeowner’s lawsuit against the Federal National Mortgage Association (“Fannie Mae”) for conversion of property that she had left in her home after the property was foreclosed could proceed.

Elizabeth Mwangi (“Owner”) owned a residential property with a mortgage.  The Owner experienced financial hardship and stopped making mortgage payments in early 2012, and around that time she moved out of the property and into an apartment with her sister.  She stopped utility service to the property but later testified that she left most of her possessions at the property.

In October 2012, the Owner listed the property for sale, hoping to have a short sale approved.  The real estate professional that she retained identified the property as “vacant” in the listing information.  Another real estate professional who visited the property on behalf of a client later testified that the property was nearly empty except for a few boxes in the garage.

The mortgage lender foreclosed the property in February 2013.  Shortly thereafter, Fannie Mae assigned a real estate brokerage firm (“Listing Broker”) to facilitate a REO sale.  Fannie Mae and the Listing Broker had previously entered into a “Master Listing Agreement” (“MLA”), which requires that all firm representatives and subcontractors follow the policies set forth in Fannie Mae’s sales guide and all applicable laws.  In particular, the sales guide requires that if a broker is uncertain about the status of personal property found on the premises, the broker is required to photograph the items and then confer with Fannie Mae.

A representative from the Listing Broker visited the property and made the determination that the property was vacant.  After examining the personal property found on the property, the representative concluded that that the personal property found on the property was worth less than $500 and so no legal eviction process was required.  Therefore, the representative ordered a re-keying of the property and a “trash-out” of the items remaining on the property. The subcontractor who performed the trash out testified that the personal property was severely damaged and only five cubic yards of trash was removed from the property.

The Owner filed a lawsuit for conversion against Fannie Mae.  The Owner claimed that she had left furniture, clothes, jewelry, and many other possessions on the property.  The Owner alleged that Fannie Mae had essentially become the employer of the individuals who threw out her possessions because of the extensive control it exercised over the contractors and so was responsible for their actions. Fannie Mae filed a motion seeking judgment in its favor.

The United States District Court for the Northern District of Georgia denied Fannie Mae’s motion for judgment and allowed the lawsuit to continue because there were issues of fact that needed to be resolved.  The court first looked at the conversion claim.  Fannie Mae argued that it could not be liable for conversion because the Owner had abandoned her personal property and also its value was minimal.  Since there was testimony that at least some personal items were thrown out, the court determined that questions of the property’s value and whether the Owner had abandoned her property were factual issues that must be resolved at trial.

Next, the court examined Fannie Mae’s argument that the Owner had abandoned her personal property and so it was not required to follow any of the statutory dispossessory processes.  Georgia statutes require a landlord to file eviction proceedings before removing a tenant and the tenant’s possessions from a property.  A former owner who remains on the property following a foreclosure becomes a tenant, but if the owner has relinquished possession prior to foreclosure, then they have no right to re-enter the property post-foreclosure.  Since there were fact questions about whether the Owner had given up possession of the property, this was another issue for resolution at trial.

Finally, the court considered Fannie Mae’s argument that it was not responsible for the actions of the Listing Broker and its subcontractors because they were all independent contractors.  Under Georgia law, a landlord cannot absolve themselves of statutory responsibilities by hiring an independent contractor and the landlord can be liable if the independent contractor violates a duty imposed by statute.  Therefore, if Fannie Mae should have followed the statutory eviction process and the Listing Broker failed to do so, Fannie Mae could be liable for the Listing Broker’s actions.

The court also stated that Fannie Mae imposed a great deal of control over the Listing Broker and contractors through the MLA and so there was a question whether this created an employer-employee relationship between the parties.  Under Georgia law, the amount of control exercised by a party is determinative of the relationship and if the amount of control requires the party to only perform its work in a certain way, that can create an employer-employee relationship.  Because an employer can be liable for the acts of its employee and the MLA imposed a great deal of control over the Listing Broker, this was another issue of fact to be considered at trial.  Therefore, the court rejected Fannie Mae’s motion for judgment and allowed the case to continue to trial.

Mwangi v. Fed. Nat'l Mortgage Ass'n, No. 4:14-CV-0079-HLM, 2016 WL 770818 (N.D. Ga. Feb. 16, 2016). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].