According to a recent report from RealtyTrac, the state of New Jersey has more zombie foreclosures than any other, and now, the state’s two senators are asking why the problem is so bad and what can be done about it.
In a letter sent last week to the heads of the Department of Housing and Urban Development, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency and others, Sens. Cory Booker, D-NJ, and Robert Menendez, D-NJ, say that the prevalence of zombie foreclosures in the state is seriously impacting the state’s residents and its economy, and they want to know what the federal regulators are going to do about it.
“One of the enduring lessons of the Great Recession and the resulting foreclosure crisis is that economic problems are not confined with the four walls of a home,” Booker and Menendez write.
“The wider community impact of this crisis is undeniable,” the senators continue.
The senators write that banks’ reluctance to do anything with abandoned properties is “unacceptable” when there are so many others who would gladly fill those houses.
“The fact is that this country is in the midst of an affordable housing crisis, and it’s simply unacceptable that banks are sitting on abandoned properties to the detriment of struggling homeowners and communities, just to preserve their bottom line,” Booker and Menendez write.
“First and foremost, a foreclosure – often precipitated by a lost job, illness, or a change in family circumstances – so clearly damages a household,” the letter continues.
“For many around the country, homeownership is the fundamental, and sometimes only, path to creating and building wealth,” the senators write. “A foreclosure temporarily and at times permanently cuts off this path, affecting future generations of American families and their ability to seek out education and employment opportunities.”
And beyond the impact of the foreclosure on the affected family, the impact of a foreclosure, especially an abandoned one, reaches far beyond that single family.
“An initiated foreclosure that is later abandoned by a bank can in short order lead to devastating impacts for the neighborhood at large,” the senators write.
“Abandoned homes are breeding grounds for blight, crime, trash and debris accumulation, all of which undeniably weigh down the values of neighboring homes,” the letter continues. “Furthermore, towns and municipalities are left to shoulder the burden of maintenance and crime prevention, all the while losing out on critical revenue from property taxes.”
Booker and Menendez’s letter cites the recent RealtyTrac report, which stated that New Jersey currently has 3,997 zombie foreclosures, the most in nation.
New Jersey also ranked highest in share of vacant zombie foreclosures as a percentage of total vacant properties at 9.4%. New Jersey’s zombie foreclosures also rose 29% from the third quarter of last year to the same period this year.
The letter, which is addressed to HUD Secretary Julián Castro; Fed Chair Janet Yellen; Thomas Curry, the Comptroller of the Currency; Martin Gruenberg, the chair of the Federal Deposit Insurance Corporation; CFPB Director Richard Cordray; FHFA Director Mel Watt; and Debbie Matz, the chair of the board of the National Credit Union Administration; says that the banks and servicers have responsibilities to maintain foreclosures and need to be held accountable for their failure to do so.
“As regulators of the entities responsible for performing mortgage servicing on these loans, we urge you to take appropriate actions to address this issue,” Booker and Menendez write. “Homeowners, neighborhoods, and communities across the country look to your agencies to ensure that banks and servicers act equitably throughout the foreclosure process.”
To that end, Menendez and Booker present five questions that they want answered:
1. In 2012, the Board of Governors of the Federal Reserve System issued supervisory guidance regarding a lender’s decision to discontinue foreclosure proceedings. This guidance requires entities to take several key actions when they decide to end foreclosure proceedings, including providing notification to borrowers, notification to local authorities, and obtaining up-to-date property values on the property. In addition to the guidance from the Federal Reserve, what regulatory, supervisory, or enforcement provisions are in place to address this issue?
2. Do existing regulations and guidance on this issue require servicers to inform borrowers that they remain responsible for property taxes?
3. Is additional statutory authority needed to require mortgage servicers to make proper notifications to homeowners and localities and to require servicers to obtain updated property valuations?
4. In addition to requiring banks and mortgage services to notify borrowers and localities of their intent to discontinue the foreclosure process, what other steps can be taken to address the current backlog of abandoned foreclosures and prevent future abandoned foreclosures?
5. Where appropriate, are your agencies coordinating regulatory, supervisory, and enforcement efforts on this issue?
“Zombie Halloween costumes may cause a scare, but what we really should be frightened about is the growing zombie foreclosure crisis haunting our communities,” said Menendez.
"We sent this letter to top federal leaders today because we want to work together to end the unacceptable practice where banks sit on abandoned properties, hitting struggling borrowers with new debt and damaging the property values and quality of life in neighborhoods,” Menendez continued. “It’s past time we put the health of our communities above bank profits.”