Lender Liability Public Accommodations in Non-Residential Foreclosures

If you’re a lender foreclosing on a commercial property, you may be used to hang-ups getting to the finalization of a mortgage foreclosure, including contentious borrowers, the snail’s pace of the court’s docket, and liens against the property. Are you aware, though, that a lender can be “on the hook” for compliance with the Americans with Disabilities Act (“ADA”) once the lender takes ownership of the subject property, or even when the lender simply becomes the mortgagee-in-possession?

Here’s how it works. Under the ADA, a private entity that owns, leases or operates a business providing goods and services to the public must provide those goods and services to people with disabilities on an equal basis as the general public.  Because lenders aren’t typically operating these businesses, this compliance is not something on the lender’s mind as it heads into a foreclosure action—that liability is originally with the borrower, who owns or operates the property.  However, once the property is transferred by sale, deed-in-lieu, or otherwise, to the lender, the liability to comply with the ADA becomes the lender’s liability.  In fact, there is commentary that a lender will be considered an “operator,” and will be liable, if the lender simply acts as receiver or mortgagee-in-possession for the property.  The lender then may be liable for actions such as barrier removal, including the removal of architectural or communication barriers, as long as the removal is readily achievable.

What does “readily achievable” mean? Under the ADA, “readily achievable” means easily accomplishable and able to be carried out without much difficulty or expense.  Great, you think—that barrier removal is too expensive.  It was so expensive that the borrower couldn’t manage to have it completed.  However, the ADA operates on a “sliding scale” of resources.  While removing a particular architectural barrier may not have been readily achievable for the borrower, removing that same barrier may be readily achievable for the lender bank with much greater financial resources.  In addition, the ADA takes into account the overall financial resources of any parent company or entity, so transfer of the real estate into a single-purpose entity will not keep the lender’s financial resources from being taken into account in the analysis.

What can the lender do to protect itself? Consider requiring borrowers to provide certifications of ADA compliance at the time of execution of loan documents, or conduct an ADA compliance audit prior to foreclosure or the transfer of a deed-in-lieu.  This will help the lender to determine and consider potential otherwise “hidden” costs of foreclosure up-front, in order to make a fully-informed business judgment regarding moving forward with foreclosure on commercial properties.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.