Zombie Properties: Easy to spot, hard to kill and sucking the life out of properties around them

Zombie Properties: Easy to spot, hard to kill and sucking the life out of properties around them

They may not be as terrifying as their horror-flick namesakes, but zombie homes—abandoned houses stuck in foreclosure with no owner living on site and no one taking care of the property—are terrifying enough to those who live or own property nearby. The abandoned houses drag down quality of life and public safety, create conditions to support crime and neighborhood blight, and put a burden on the municipalities that have to take care of them. The end result: nearby property values plummet.

Zombie properties can trigger the rapid decline of a neighborhood.  Abandoned homes fester, with rats, mold, weeds, squatters, foot-high grass, plywood-covered windows, raccoons, drug addicts, mosquitoes, leaks, floods and sidewalks covered with snow all winter. Making sure that these abandoned properties do not fall into extreme disrepair saves the equity of nearby homeowners and taxpayer expense. Currently, municipalities spend millions of tax dollars trying to maintain the structures.

While zombie properties are not unique to New York, the state’s protracted foreclosure process has contributed to the number of vacant properties here, bolstering the phenomenon. The problem starts even before the homeowner moves out.  As foreclosure proceedings linger for months and years, homeowners in default abdicate any responsibility for maintenance, either because they lack the funds or because they know that the property will eventually end up in the bank’s REO portfolio. The problem built steadily throughout the financial crisis with each successive wave of defaults and foreclosures adding to the existing pool of zombie properties.

While the origin may lie in the 2008 crisis period, the ultimate impact was delayed.  According to New York Attorney General Eric Schneiderman, zombie foreclosures increased 50% from 2013 to 2014, bringing the total statewide to 16,701. New York City was no exception: zombie properties in the five boroughs increased 38% in 2014.  Brooklyn had the highest number with 1,089, followed by 966 in Queens, 720 in Staten Island, 639 in the Bronx and 111 in Manhattan. Long Island showed a 62% increase in 2014 to 4,048 zombie homes.

Beginning in May 2015, Governor Cuomo and the New York State Department of Financial Services (DFS), working with a range of lenders, began to target the issue, including the impact on property values.  Under the initiative, the lenders agreed to monitor and maintain vacant properties in an effort to protect them and combat neighborhood blight and report zombie properties to a state registry developed by DFS. DFS will then share that information with local government officials and work with the local officials to address and escalate any concerns about maintenance with the bank or mortgage company that is servicing the loan. To-date, thirteen lenders—representing more than 70% of the New York market—have agreed to participate.

However, Attorney General Eric Schneiderman feels that voluntary best practices do not go far enough to address the problem, and he has proposed legislation to require lenders to take steps or face penalties.  Similar legislation stalled in the state Legislature a year ago, but Schneiderman hopes that the expanded version of the bill (A.6932/S.4781), reintroduced in April 2015 by Assembly Judiciary Committee Chairwoman Helene Weinstein (D-Brooklyn) and Senate Coalition Co-Leader Jeffrey D. Klein (D-Bronx/Westchester), will be approved. The bill calls for homeowners delinquent on mortgage payments to be notified that they can stay in their residences until ordered out by a court. It would also require lenders to identify, secure and maintain properties earlier than currently required.  The legislation would make banks and mortgage lenders responsible for the properties after the homeowner leaves or pay fines of as much as $1,000 a day.

Some members of the lending industry oppose the bill because it would impose “uncertain and unworkable mandates” on financial institutions. Among other things, the bill would require a lender engaged in a foreclosure action to maintain an abandoned property before the institution actually has ownership of the property, when the lender may have no legal right to access the property in question. Instead of imposing additional costs and complexity on mortgagees engaged in foreclosure, the industry argues that “the [state] legislature should focus on streamlining the State’s already complex and lengthy foreclosure process.”

 

Sources:

“Zombie Houses: A Newsday and News 12 Special Report.”  Newsday.com  Written by Denise Bonilla.  Data analysis by Tim Healy. n.d.

“NY Lawmakers Want Banks Held Accountable For ‘Zombie Properties’.”  CBS New York.  April 27, 2015.

“Trending Thursday: Do you want the good news or the bad news first?”  HousingWire blog Rewired.  July 9, 2015.  Written by Trey Garrison.

“11 Lenders Agree to Monitor ‘Zombie Properties’ in NY.”  NBC New York.  May 18, 2015.  By Michael Virtanen.

“Zombie foreclosures overrunning state, jumped 38% in 2014: Attorney General report.” New York Daily News.  April 27, 2015.  By Glenn Blain.

“A.G. Schneiderman Joins Bipartisan Group Of Local Officials To Announce New Legislation To Combat Increase Of ‘Zombie Homes’ On Long Island.”  Long Island News.  May 8, 2015.

“Governor Cuomo Announces Major Mortgage Companies Agree to Measures to Combat Vacant and Abandoned ‘Zombie Properties’.”  Press Release of the New York State Department of Financial Services.  May 18, 2015.

“A.G. Schneiderman Announces Introduction Of Expanded Legislation To Combat Spread Of “Zombie Properties” Across New York State.”  Press Release of the Office of Attorney General Eric T. Schneiderman.  April 17, 2015.

“A.G. Schneiderman, Senate Coalition Co-Leader Klein, and Assemblywoman Weinstein Introduce New Legislation to Combat Rise of ‘Zombie Homes’ Across New York City.”  Press Release of the Office of Attorney General Eric T. Schneiderman.  April 27, 2015.

“Oversight of Abandoned Property in Foreclosure.”  Legislative Memo of The Business Council.  May 26, 2015.  By Ken Pokalsky.