While the U.S. Senate could soon consider new rules governing the maintenance of foreclosed homes and the glut of “zombie homes” that blight many communities throughout the country, the state of New York is taking the matter into its own hands.
Late last week, New York Gov. Andrew Cuomo signed “sweeping” legislation to reform the state’s foreclosure process and address the state’s issues with zombie homes.
The new legislation being signed into law brings an end to a two-plus-year effort undertaken by some of the state’s top legislators to combat New York’s foreclosure problems.
In 2014, New York Attorney General Eric Schneiderman first introduced legislation to that would have compelled banks and mortgagees to maintain vacant properties that are abandoned because of delays in the foreclosure process.
Then, in early 2015, Schneiderman announced plans to resubmit an expanded version of the foreclosure bill to the state legislature. Schneiderman’s bill, called the Abandoned Property Neighborhood Relief Act, was designed to reduce the number of zombie homes by informing homeowners of their right to stay in their home until a court orders them to leave.
Later that year, the now-former Superintendent of the New York Department of Financial Services, Benjamin Lawsky, called the state’s foreclosure process “broken,” and introduced a series of suggested reforms to the state’s foreclosure rules.
Now, thanks to all those efforts, and the efforts of others, the state of New York will soon have a series of new laws for dealing with foreclosures.
According to Cuomo’s office, the legislation combats the blight of vacant and abandoned properties by expediting the rehabilitation, repair and improvement of these properties, and enables the state to assist homeowners facing mortgage foreclosure.
Additionally, the new laws will also impose a pre-foreclosure duty on banks and servicers to maintain zombie homes, creates an electronic registry of abandoned properties, and expedites foreclosure for vacant and abandoned properties to get them back on the market.
The laws will also enhance the state’s mandatory settlement conferences, and establishes a consumer bill of rights to help people remain in their homes, Cuomo’s office said.
“For many New Yorkers, homes are our single most important investment, but that investment can be undermined by the blight of neglected and abandoned properties,” Cuomo said.
“For each zombie home that we cure and for each that we prevent with this legislation, we are saving entire neighborhoods from the corrosive effect of blight and neglect,” Cuomo added. “I thank my colleagues in the Assembly and Senate for seeing a crisis and helping to turn it into an opportunity for people to realize the great American Dream of homeownership.”
In fact, New York's issue of zombie foreclosures is one of the worst in the nations, according to a recent report from RealtyTrac.
According to that report, New York currently has the second most zombie foreclosures in the U.S., with 3,352 abandoned homes in the state.
According to information provided by Cuomo’s office, the legislation address many areas of the state’s foreclosure process. Specifically, the legislation will:
Strengthen home foreclosure prevention services
- Enhance the Effectiveness of Mandatory Settlement Conferences: The mandatory settlement conferences became law in 2010 to slow foreclosure and give homeowners a better chance to fight the foreclosure. Since its creation, the number of foreclosure default judgments has declined from 80% to less than 20%. This legislation will enhance the effectiveness of settlement conferences even further for homeowners by prescribing the rights and duties of the parties and clarifying how the process should work to best protect homeowners contesting foreclosures and prevent them from losing their homes
- Establish a Consumer Bill of Rights informing property owners of their rights in foreclosure proceeds to prevent people from losing their homes: Some homeowners vacate their homes early in the foreclosure process because they are unclear about their rights or face pressure to vacate. The enhanced notice requirements established with this legislation will alleviate this confusion and reduce the resulting abandoned properties by explicitly informing homeowners of their rights
- Create the Community Restoration Fund (CRF), a new tool for the State of New York Mortgage Agency (SONYMA) to assist homeowners facing mortgage foreclosure. CRF will purchase defaulted mortgage notes from other lenders and offer favorable mortgage modifications to keep homeowners in their residences. CRF will have the ability to forgive a portion of a loan’s principal and make the loan affordable in areas where home values have declined or where a homeowner has experienced a decrease in income
Combat the blight created by vacant and abandoned properties
- Impose a pre-foreclosure duty on the banks and servicers to maintain vacant and abandoned properties: Previously, a bank or mortgagee had the responsibility of maintaining a vacant property once a judgment of foreclosure and sale was obtained, creating zombie properties and blight in communities. This legislation places the maintenance obligation on a mortgagee when the mortgagee becomes or should have become aware of the vacancy. Under this law, the bank has a duty to maintain and secure a residential real property where there is a reasonable basis to believe it is vacant and abandoned, and faces civil penalties up to $500 per violation, per property, per day for failing to do so
- Expedite foreclosure for vacant and abandoned properties: The legislation offers plaintiffs an option for an expedited foreclosure process on bonafide vacant and abandoned properties that homeowners no longer want. To initiate this process, plaintiffs would make an application for an order to show cause upon notice seeking entry of judgment of foreclosure and sale on the grounds that the property is vacant and abandoned
Additionally, Cuomo’s office states that the legislation requires a foreclosing party to move to auction within 90 days of obtaining a foreclosure judgment. In addition, a foreclosing party would be required to take action to ensure that the property is reoccupied within 180 days of taking title.
The legislation will also establish an electronic registry of vacant and abandoned properties. According to Cuomo’s office, the legislation will promote communication between local governments and mortgagees responsible for property maintenance.
And in cases where homes are vacant, CRF will offer a mechanism to “expeditiously complete a foreclosure” and work with land banks, Community Development Financial Institutions, and other local nonprofits to rehabilitate properties and resell them to new buyers, Cuomo’s office said.
“This law is major victory for New Yorkers living in communities throughout the state, as it will give regulators and law enforcement the tools they need to revitalize neighborhoods that have been devastated by the proliferation of zombie homes,” Schneiderman said.
“I applaud Assembly Member Weinstein and Senator Klein for their unwavering commitment to revitalizing communities plagued by zombie homes by working with Governor Cuomo to craft an impressive and meaningful legislative package,” Schneiderman continued.
“I also commend Governor Cuomo for making this issue a priority this session and by acting swiftly to sign this bill into law,” Schneiderman concluded. “As I have long said, zombie homes are an enduring legacy of the housing crisis, but thanks to the advocacy of determined elected officials and advocates, and thousands of motivated New Yorkers, we now have a law that will lift-up communities statewide.”