Fast-Track Foreclosure Legislation: A Proactive Solution to Address the Problem of Community Blight
May 23, 2017
While the economic recovery has brought a slowdown to residential mortgage foreclosures, there remains a plethora of vacant and unoccupied properties dotting urban landscapes. Unfortunately, outdated foreclosure laws can leave these homes vacant and vulnerable for years, fostering the spread of community blight.
Unlike a good bottle of wine, a vacant property does not get better with age. For the past several years, many in the industry (including this author) have been advocating for state legislators across the country to consider legislation that will reduce the time it takes to foreclose on vacant and abandoned properties. As long as these properties remain vacant, they contribute to a self-perpetuating cycle of blight and instability in the community. Houses that stand empty suffer structural damage from weather and climate. Further, vacant properties are hubs for crime, drug activity, and fires, as well as becoming havens for squatters.
Fast-track legislation can reduce the number of “zombie properties” and reverse the problems that destroy neighborhoods. Several states have put themselves ahead of the national curve in the fight against blight by enacting fast-track legislation. Recently, Ohio and Maryland have passed fast-track legislation, with other states considering similar legislation as an important step in addressing neighborhood blight.
These new fast-track laws accelerate the foreclosure process to as little as six months in certain situations, enabling the mortgage servicer in many cases to get possession of the property before it deteriorates — increasing the likelihood that it can be rehabilitated and sold. Specifically, fast-track legislation permits the holder of a note of a defaulted residential mortgage loan (secured by a residential property that appears to be vacant and abandoned) to bring a summary action in court to foreclose the loan in an expedited manner.
It is important to mention that compliance with consumer protection laws and a proper balance of property rights for both the mortgage servicer and the property owner are at the core of any fast-track legislation. The language in the Ohio and Maryland legislation provides a summary of actions by residential mortgage servicers and revises procedures and timelines for foreclosure action, while still providing property owners with necessary protections. These protections help to ensure that a property is, indeed, vacant and abandoned before the expedited foreclosure process is instituted. To be clear, no one will be forced out of their home.
Both the Ohio and Maryland laws provide for this balance of protection for all parties. For example, the new Maryland law requires secured parties to serve a petition for expedited foreclosure on the mortgagor and to post a notice on the property, allowing the record owner of the property to challenge any finding that the property is vacant and abandoned. The two states’ legislation also authorizes a secured party to expedite the foreclosure process, provided that the party can demonstrate to a court that the property is vacant and abandoned by satisfying at least three of eleven specific criteria listed in the legislation (e.g., utilities disconnected, windows and entrances boarded up).
Other states need to take action to change their laws and target zombie properties. Several states (including New York, Pennsylvania, and New Jersey) have introduced fast-track legislation and, hopefully, these proposals will be enacted by their respective general assemblies. On the other hand, some states have passed recent laws that seem to miss the point, imposing a pre-foreclosure duty on mortgagees to maintain vacant and abandoned properties or prohibiting lenders from taking possession of a property prior to foreclosure.
As these new fast-track laws go into effect, one of the biggest challenges will be enforcement. Mortgagees, code enforcement, and the courts will need to work together to ensure that fast-track legislation accomplishes its purpose to eradicate the blight that is plaguing our communities.