who purchases a mortgaged premises without assuming the mortgage may nevertheless be liable for waste. One owning a mortgage on real estate has an undeniable interest in the property, whether or not the current possessor had assumed the mortgage.
– Reduction in the value of the security interest is important – damages for waste are not the actual amount of the waste).
– Despite this decision, deficiency judgments are unavailable against non-assuming grantees. Maryland has held that covenants run with the land even if they are not expressly assumed.
– Is a non-recourse clause broad enough to bar an action for waster? Yes, unless the waste was committed in bad faith or maliciously. Plus, non-recourse carve-outs include failure to pay taxes, insurance proceeds, etc. = waste.
– If third parties have actual knowledge of the existence of the mortgage, they may be held liable for waste committed.
– LIMITATIONS ON RECOVERYT OF DAMAGES FOR WASTE: Recovery may not exceed the least of:
(a) the actual harm caused by the waste (cost of repair or diminution in the value of the property).
(b) the amount of the mortgage debt or, if foeclosure has already occurred, the amount of any unpaid deficiency.
(c) the amount by which the mortgagee’s security has been impaired.
– Lower L/V ratios are safer. If the injury to the property does not reduce its value below the amount required to secure the debt, the mortgagee has suffered no injury. This makes the L/V ration 100% and leaves the mortgagee no cushion. The Restatement states that an impairment exists only if the L/V ration is above its scheduled level.
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