When a foreclosed property has damages because the owner chose to use the money generated by the property for their own purposes rather than make repairs, pay taxes or maintain the property and this affects the property’s value, lenders have the option of filing bad faith waste claims to recoup losses. Bad faith waste involves siphoning money away from a property for the owner’s own purposes rather than using it to pay for repairs, maintenance or taxes. In the article “How to Fight Bad Faith Waste,” GlobeSt.com sat down with Managing Partner Jim Fedalen to discuss what bad faith waste is, how this affects real estate properties and when lenders should consider taking action.
“The most common form of waste occurs through a failure to properly maintain the property,” Mr. Fedalen stated. “Bad faith waste is defined as reckless, intentional or malicious conduct, which resulted in waste to the property, and has been described by one court as ‘milking’ productive property by retaining all revenue and/or diverting cash flow to other uses and then allowing waste to occur.”
Bad faith waste applies only when the property will not sell for enough at foreclosure to cover the debt as a result of the waste, and if this is the case, Mr. Fedalen advises lenders to consider filing these claims which are not barred even if the foreclosure has occurred. Further, he adds that if the owner is found liable for bad faith waste, the lender can go after any assets of the owner and is not limited to merely recovering the property.