Understanding New Regulations Surrounding Zombie Properties
Slaying (or
Defraying) the Zombie Scourge
On June 23, 2016 a bill (Senate Bill
S8159 Assembly Bill A10741) was signed by Governor Cuomo and made law, covering
multiple items, including several provisions dealing with real property
maintenance and foreclosures. The press releases from the Governor and others
in his administration tout the law as an effort to preserve the American Dream
and to combat the scourge of zombie properties.
When the housing market collapsed
and the recession hit, many New Yorkers suffered. This unfortunate economic reality was
compounded by the presence of many high-cost or sub-prime loans in the
market. As a result of the combination
of these, and many other factors, the number of foreclosures in New York State
dramatically increased. In an effort to
stem the growing tide of foreclosures, New York passed a series of laws,
radically changing the foreclosure process in New York. While the new laws dramatically slowed the
already lengthy foreclosure process in New York, they had the unintended
consequence of stalling many foreclosure cases in the courts. While cases dragged on in our courts for
years, many homeowners chose to walk away from their properties, especially
when the amount due the lender far exceeded the property value. These properties, now abandoned, remained the
legal property of the homeowner; however they were no longer occupied or being
maintained. Such properties are referred
to as “zombie properties.”
Abandoned and ill-maintained
properties are by no means a new phenomenon.
The only difference we now face is the scope of the problem and the
question of who should bear the cost of maintaining these properties. Up until this point, the law was clear that a
property owner was responsible for their own property. If an owner failed to maintain their property
and it became a nuisance, the government had the authority to step in to remedy
the problem and then charge the owner for the cost. Given the volume of abandoned properties and
the current penchant for blaming the banks, the new legislation passed to
combat this problem generally shifts that cost to lenders holding defaulted first
mortgage liens on vacant, abandoned properties.
Although the homeowners also retain responsibility, it is likely that
municipalities will look to the banks to maintain vacant and abandoned
properties.
The changes enacted, which become
effective on December 20, 2016, include new provisions establishing a duty to
maintain vacant abandoned residential real property, requirements for
inspections, establishment of a vacant property registry and penalties for
noncompliance. This legislation extends
the inroads previously made by the enactment of RPAPL § 1307 in 2009 (which
imposed a duty on the plaintiff, in certain circumstances, to maintain a property
once they had obtained a judgment of foreclosure and sale). Under the new law the responsibility will
arise from the mere presence of the defaulted mortgage lien on vacant abandoned
residential real property, not from the entry of the judgment of foreclosure
and sale. This new law alters the
concepts of legal responsibility, imposing costs and duties on a lienholder if
the property which secures the loan becomes vacant and if the borrower defaults
on the loan.
Other provisions in the new
legislation include changes to the 90 day pre-foreclosure notice, changes to
the Help For Homeowners notice served with the Summons and Complaint, changes
to the settlement conference procedures (including standards for good faith
negotiations and penalties for failure to meet those standards), establishing
an expedited foreclosure process for abandoned properties and changes requiring
that the foreclosure sale take place within 90 days of the Judgment of
Foreclosure and that the property be placed on the market within 180 days of
acquiring the foreclosure deed.
Although this new legislation may
result in more lenders paying closer attention to the condition of the
properties securing their loans, the reality is that most responsible lenders
already inspect and secure abandoned properties. To fully address the issue of zombie
properties the glut of pending cases must be moved though the foreclosure process
to a final resolution. Acknowledging
this fact, the new legislation does provide a mechanism to seek an expedited
judgment of foreclosure on vacant and abandoned residential property. It remains to be seen whether lenders will
avail themselves of this process and whether the courts will be receptive to
such motions.
John
K. McAndrew, Esq. is a Partner in the firm’s Secured Lending and Financial
Recovery Department. He can be reached
at 585-987-2885 or [email protected]