Banks holding mortgages now have one more thing to worry about: potential criminal and civil liability and forfeiture under the federal “crack-house” statute. Sound crazy? Read on, because late last year the four U.S. Attorneys in California threatened banks with liability simply because mortgaged properties were being used as medical marijuana dispensaries, even though such dispensaries are legal under state law.

First, the legal background: The federal crack-house statute (21 U.S.C. § 856) was enacted in the mid-1980's to combat the crack cocaine epidemic and crack-house phenomenon by creating criminal and civil liability for using property for drug operations involving any “controlled substance.” The property is also subject to forfeiture. (See 21 U.S.C. § 881(a)(7).) The crack-house statute, however, was drafted hurriedly and quite broadly. It covers those who “manage and control” the property, even as a “mortgagee,” if they know of the drug operations and make the property “available” for such use. (See § 856(a)(2)).