Proposed Act Could Increase Mortgagee and Mortgage Servicer Responsibilities in Foreclosure Actions
By: Katerina M. Kramarchyk, Esq.
The New York State Attorney General, Eric Schneiderman, recently announced his intent to reintroduce the Abandoned Property Neighborhood Relief Act to the Senate in this year's legislative session. The Act was originally introduced in 2014 to both the Senate and Assembly, but failed to make it past the committee stage.
The Act was drafted in response to the rising number of "zombie foreclosures" popping up across New York State. It is estimated that well over 15,000 properties in New York State are vacant and fall into this categorization. Zombie foreclosures are foreclosure proceedings wherein a homeowner prematurely moves out of a property at the commencement of a foreclosure action, leaving it unoccupied, unmonitored, and in many cases, unsecured. Subsequently the action is cancelled or stalled without the owner realizing. The stalled foreclosure actions cause back property taxes to accumulate in the name of the borrower, and may impact borrowers' credit for longer than necessary. The cancellation of foreclosure actions without borrower knowledge leads properties to stay vacant, and subsequently become eyesores, or dangers to the community.
The Act, in sum, works to prevent properties from becoming prematurely vacant and falling into states of disrepair or illegal occupation during foreclosure proceedings. If passed, the Act would require mortgagees to take possession of and maintain vacant properties that are subject to foreclosure proceedings as soon as they become aware of the vacancy. The Act also requires mortgagees to affirmatively communicate to borrowers about their right to occupy their homes until the foreclosure proceeding is complete.
If the Act is successful, a statewide electronic abandoned property registry would be constructed so that local officials will always know which properties are abandoned, undergoing foreclosure, or may be in need of maintenance. It will also create a hotline for neighbors to report abandoned properties and abuses on those properties such as vandalism or squatting.
Some municipalities across New York State have already taken the vacant property issue into their own hands by creating local laws to mandate that mortgagees register vacant properties to a "vacant property registry," or to comply with specific notice or maintenance rules. The Village of Massapequa Park in Nassau County, for example, requires mortgagees to notify the Village, in writing, when a foreclosure action is commenced against any property within the Village. As another example, the Town of Amenia in Dutchess County requires that within 10 days of issuing a notice of default on the mortgage loan, mortgagees conduct an inspection of the property to determine its occupancy status. Should the property be vacant, it is the mortgagee's obligation to register it to the vacant property registry and pay the accompanying fees. Should the property be occupied, the Town imposes a monthly inspection duty upon mortgagees throughout the course of the foreclosure action until the home is sold, the mortgage becomes current, or the property becomes vacant (at which point, it is again the mortgagee's responsibility to register the property to the vacant properties list).
Last year, the AG's Act gained critical support by local leaders and lawmakers across the State around late May and early June, only weeks before the end of the Legislative Session. It may be the case that since the Act is being introduced much earlier on the Session calendar this year, it will have a better chance of passage in 2015. Mortgagees and mortgage servicers with questions about how the act will impact their responsibilities in foreclosure actions, or with questions about how to comply with municipality requirements across the State are encouraged to contact their Woods Oviatt Gilman LLP attorney.
