Almost a dozen banks, mortgage companies, and credit unions representing nearly 70% of the New York market will adopt a set of best practices to help combat the neighborhood blight and economic damage caused by vacant and abandoned “zombie properties” in New York State.

The companies developed these “best practices” working with the New York State Department of Financial Services. The best practices are targeted to be implemented and adopted by August 2015. 

Under these best practices, the banks and mortgage companies will regularly inspect properties that fall into delinquency to determine if they are vacant and/or abandoned, and make sure that those properties are safe and properly maintained, among other measures.

The banks and mortgage companies will also report properties determined to be vacant and/or abandoned to a state registry to be developed by NYDFS, which will share that information with local government officials.

"Zombie properties can bring down the economic health and safety of entire neighborhoods – but by working together we are taking steps to help strengthen and repair local communities," said Governor Andrew Cuomo.

NYDFS Superintendent Benjamin Lawsky said this is a step forward in eliminating the zombie problem.

“The wave of zombie properties that arose in the wake of the financial crisis harms local communities and threatens the long-term health of the mortgage market. These common sense actions are an immediate and vital part of repairing that damage as we continue to pursue additional legislative reforms,” Lawsky said. “We will work closely with local officials, mortgage companies, and other stakeholders to continue addressing the vital problem of zombie properties.”

According to RealtyTrac’s Zombie Foreclosure Report for the first quarter of 2015, New York zombie foreclosures increased 54% from a year ago to 16,777, the third-highest state total and representing 19% of all residential properties in foreclosure.

Zombie homes are a problem throughout the U.S. as communities deal with the fallout from the housing crisis, with one estimate suggesting that one in five houses facing foreclosure are vacant. They are unwelcome additions to the properties that have gone unsold, unoccupied and unneeded as city populations have declined over decades of demographic and economic change.

This issue is exacerbated by a protracted foreclosure process and the damage caused by the financial crisis. Under existing law, property owners are responsible for the maintenance of their properties and, thus, banks and mortgage companies are not required to maintain vacant and abandoned properties until they receive a judgment of foreclosure, often three years or more after filing for foreclosure.  During this limbo period, some properties may fall into disrepair, and worsen blight and safety issues.

Among the protections provided by the best practices announced today, banks and mortgage companies will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and abandonment, and then every 30 days thereafter. If the property is determined to be vacant and abandoned, the bank or mortgage company will secure each unit at the property by changing the lock, replacing or boarding up windows, posting the property with contact information, and eliminating other safety hazards. 

Then, on an ongoing basis, the bank or mortgage company will monitor the property’s condition to ensure it remains secure and that it complies with applicable provisions of the New York maintenance code (e.g. the grass must be cut, and conditions at the property must be safe and sanitary). The best practices are applicable to first-lien mortgages on residential homes and subject to existing laws, and insurer and investor guidelines.

After these best practices are adopted and the registry has been created by NYDFS, participating banks and mortgage companies will notify NYDFS of any new properties they have determined to be vacant and abandoned and NYDFS will share this information with local officials across the state. NYDFS will accept complaints from neighbors or local officials about the properties. 

The banks, credit unions, and mortgage companies that are adopting these best practices, which represent nearly 70 percent of the New York market, are:

  • Wells Fargo
  • Bank of America
  • Citi Mortgage
  • Ocwen
  • Nationstar
  • PHH
  • Green Tree Servicing
  • Astoria Bank
  • Bethpage Federal Credit Union
  • M&T Bank
  • Ridgewood Savings Bank

NYDFS says it will continue discussions in the days and weeks ahead with additional banks and mortgage companies encouraging them to adopt these industry best practices.