Page 19 - BusinessWest August 18, 2025

When a Fire Strikes
What Rental Property Owners Should Know About Control
BY DARYL M. JOHNSON, ESQ.
When a rental property suffers a devastating fire, most own-
ers assume they’ll have the freedom to use the fire insur-
ance proceeds to pay off their mortgage or make other
financial decisions. But in cities like Springfield and others in Mas-
sachusetts, property owners can be in for quite a surprise. Local
ordinances — combined with the city’s enforcement powers — can
significantly limit what you and your lender are allowed to do with
the building and the insurance funds.
Fire Insurance Proceeds: Not Always Yours
to Direct
In many cases, a mortgage instrument allows the lender to apply
insurance proceeds toward repairing the mortgaged property or
paying down the outstanding loan in the event of a casualty. How-
ever, when a building is declared uninhabitable, condemned, or
becomes a blighted nuisance, local governments can, and will, step
in. In Springfield, under its municipal code and zoning regulations,
the city has the authority to initiate enforcement actions in housing
court that affect both property owners and lenders.
City Intervention in the Aftermath of a Fire
Under Springfield’s Code of Ordinances — particularly its anti-
blight, nuisance, and vacant property regulations — the city may
take swift action when a structure is significantly damaged by fire.
If the building is left vacant, unsecured, or deemed a public safety
risk, the city can initiate a housing court action to enjoin the prop-
erty owner and the mortgage lender from accessing or making uni-
lateral decisions about the property.
It can also seek a receivership order, allowing a third-party
receiver to take control of the property, make repairs, and recover
costs via liens, and it can even restrict or monitor the use of insur-
ance proceeds, particularly when used for purposes other than code
compliance, demolition, or rehabilitation.
In some cases, the city may record a lien or notice of violation
that clouds title and complicates, and in some instances prevents,
refinancing, resale, or redevelopment.
Mortgage Lenders Are Not Exempt
Springfield ordinances don’t just target property owners — they
also involve mortgage holders, especially when lenders receive
insurance proceeds or attempt to foreclose on or dispose of fire-
damaged properties without addressing code violations or unsafe
conditions.
Housing court judges have broad powers to issue injunctive
relief against lenders and loan servicers, require insurance pro-
ceeds to be escrowed, and prevent satisfaction or discharge of the
mortgage until compliance is achieved.
Best Practices for Owners and Lenders
If you own a fire-
damaged rental property
in Springfield, consider
“When a building
is declared
uninhabitable,
condemned,
or becomes a
blighted nuisance,
local governments
can, and will, step
in.”
Rentals
Continued on page 21 >>
We’re here for
local business.
Ask us about:
• Commercial/Business Loans & Lines of Credit
• Business Deposit Accounts & Services
• Flexible Cash Management Solutions
• Robust eBusiness Solutions Business Online Banking
• Business VISA® Debit & Credit Cards
• Industry-Leading Merchant Services
Unlock your potential
bankESB.com | 855.527.4111
Member FDIC | Member DIF | NMLS #: 405477
Business W est << LAW >>
AUGUST 18, 2025
19