Here?s One Way to Fight Zombie Properties

Updated 6/29/16: The New York Law Journal published an article titled Legislative Assaults on Mortgage Holders.

Link to article

It comes as no surprise to mortgage lenders that elected officials are worried about mortgage borrowers and continue to promulgate borrower-friendly legislation. These sundry acts contribute to both extending the duration of the foreclosure process and making it more expensive for the foreclosing party. While a few of these do afford some comfort for limited borrowers in need, lenders and their counsel will opine that the post-mortgage crisis laws offer fertile ground for wily borrowers to interminably delay the foreclosure process.

It is apparent that proliferation of these new laws are continuing apace. An alert about two—of more than a few others—which need to be recognized follows.

Deposit for Vacant Parcels

A genuine jolt applies to mortgages in New York’s Town of Hempstead because a new law “in relation to Foreclosures, Undertakings and Maintenance of Premises” was just passed in May, 2016.1 (Code of the Town of Hempstead Chapter 128, subsection 128-61-1). How about a $25,000 advance for every action upon an abandoned parcel!

Note immediately that the town is no backwater—it is the largest town in the nation and has a population in excess of 760,000. So there are mortgages galore within its borders.

Despairing that vacant homes are an eyesore and a nuisance to neighborhoods, the town has shifted the burden of maintaining such premises from the owners of the property to any party which initiates a foreclosure on that property. And rather than wait for the moment that a foreclosure judgment may be entered (as RPAPL §1307 law inadvisedly already does2) it mandates that the foreclosing party shall deposit a $25,000 undertaking with the town within 45 days of commencement of any foreclosure against a residential property (single-family, two family or multiple family residence) that “has become vacant.”

Definitionally, the party obliged to make the deposit is any person, business, organization, bank or lender. Residential property in turn is recited to be improved by a single-family, two-family or multiple family residence. The stated purpose is to secure the confirmed maintenance of the property free of violations (as in turn delineated in Section 128-61) for the duration of the vacancy—all as determined by the Commissioner of Sanitation. It is then declared to be unlawful for any such foreclosing party to fail to make the required deposit.

If the Commissioner of Sanitation determines that there is violation at the property, the deposited money can be used to remediate the condition (in addition to any other enforcement). When such monies are drawn down, the foreclosing party must restore the account to the full amount within 15 days after written demand down from the town. Failure to replenish the fund is likewise declared unlawful.

Should the initial deposit or the replenishment not be made, the town can serve a 10-day notice, pursuant to the process service requirements of CLPR Article 3, demanding the money. Failure to comply then elicits a fine up to triple the maximum in Section 128-65(A) of the chapter together with a minimum fine of $500 each day of noncompliance, or by imprisonment for not more than 15 days or by both fine and imprisonment. Increasing the scope of penalties, each calendar day of failure to comply constitutes a separate additional offense.

Although the cited sections pointedly apply to residential properties, its own subsection G inexplicably states that “This section shall apply to all non-residential foreclosures commencing after the effective date…” (emphasis supplied). While editorially it can be suggested that the reference to non-residential is a typographical error, until corrected, the possibility exists that this encompasses any vacant property.

Problems With the Legislation

In addition to being tough—indeed oppressive and chilling—the statute is imprecisely written. In a nutshell, here are some of the major problems with this legislation:

  • There is at least one critical definition unstated. The characterization of a single family or a two family residential property is understandable, but without the statute referring to a definition within its terms or elsewhere in the code, presumably a multiple family residence could be up to any number of units. Whether that means, for example, that the foreclosure of an apartment building incurs the requirements of this statute is unclear and presents an immediate issue.
  • When property is vacant is an elusive contemplation. If an owner abandons property, it is a question of fact as to whether he has left with no intention of returning. It is not necessarily easy to determine. Did he take all of the furniture? Perhaps not. If some of the furniture is still there, does it suggest that the people might return? Practitioners can readily confirm why this is a difficult concept to glean with certainty and it presents obvious difficulties for the foreclosing party in establishing whether the property is vacant, thus eliciting the $25,000 undertaking.
  • When the vacancy has occurred sufficient to elicit the requirement is another murky assessment. It is apparent that if the property is vacant at the inception of the action, the undertaking is required. But if it becomes vacant during the course of the foreclosure, the responsibility is fuzzy, although it may very well be that the town would determine during the action that there is a vacancy and make a demand for the undertaking.
  • A lender only has a lien. The property is owned by, “the owner.”3 That is not the lender. It is the borrower who owns the premises and the responsibility to maintain property should be with that person. But the town has elected to shift responsibility and therefore makes this demand of the foreclosing party. A lender, holding only a lien—not ownership—would posit that it should not be responsible for this obligation and it is certainly not anything that the mortgage ever contemplated. This is interference with a contractual relationship.
  • Because a foreclosing party includes any “person,” the town is also imposing this undertaking obligation upon, for example, an elderly couple who may sell their house and move to Florida but needs to take back a purchase money mortgage to facilitate the sale. Or there could be a person who makes a mortgage loan to a neighbor or a relative and suffers a vacant property and the need to foreclose. They too—under the language of this statute—are obliged to submit a $25,000 undertaking. Whether they have the wherewithal to do that may be quite doubtful.
  • Any notice to be sent to the foreclosing party will go to its last known address. But that will be the address in the mortgage. If the lender or foreclosing party has changed its corporate status, or been taken over, or if the entity or person who held the mortgage has moved, the address in the mortgage itself will remain the same, not reflecting the change. Consequently, it is possible, indeed probable in more than a few instances, that a notice demanding the payment may not be received—thereby invoking the major penalties delineated in the law.
  • Whether the expenditures advanced and expended by the town’s sanitation commissioner can be added to the mortgage debt is uncertain. The problem is that no mortgage by direct language contemplates an expenditure of monies to be deposited with a municipality to be spent as that governmental entity deems appropriate regarding maintenance. It would take some stretching to fit it into standard language, thus creating uncertainty in determining its inclusion. This puts the money at risk of not being recoupable. At the very least, it suggests that lenders will need to amend their mortgages to anticipate such a situation.
  • While a $25,000 undertaking is substantial enough, it is apparent that the foreclosing party can be liable for more because the sum on deposit must be replenished as it is drawn down.

In the end, the new law is laden with confusion and dangerous aspects which need attention. Even if that attention is given, the concept of causing the holder of a lien to deposit $25,000 (with potentially greater liability) for the privilege of enforcing a defaulted mortgage is a bizarre notion. Foreclosing in this venue just became much more expensive.

Standing Defense

Then there is a frightening statute just passed in the New York State Assembly providing that a borrower does not waive the defense of a foreclosing lender’s lack of standing even if that defense is not asserted in a pre-answer motion or in an answer. (This is to be via a new RPAPL §1302-a). While the senate must yet vote on it as well, it may indeed become law and it is a very serious matter for lenders and servicers. We will explain.

The supposed defense of lack of standing has for a number of years been a particular favorite of defaulting borrowers. They readily assert it—after all, it is hardly unknown to their attorneys—and this serves as a source of much delay in the foreclosure process. While it is true that on some occasions a foreclosing party has not been careful enough to have the note in its possession prior to initiating the foreclosure, or neglected to have an assignment of the note (and mortgage which goes with the note) prior to inception, most of the time there really is no issue.

But the most creative of obfuscation presents challenges in this arena: how to satisfactorily demonstrate delivery of the note, meeting claims about a missing allonge, an assignment page unstapled from the note, among a number of others. While lenders typically prevail in the end, they are subject to much agony in the process.

Perhaps because an issue of standing is or would be apparent at the inception of any case, it is a defense which if not interposed in a motion seeking to dismiss a complaint, or if not part of an answer to a complaint, is deemed waived—as a matter of statute in New York.4 Much case law over all the years has strongly supported this.5 Borrowers cause enough mischief presenting the defense in a motion or in an answer.

What if they decide to try the defense long after the summary judgment has been granted or after a judgment of foreclosure and sale has been entered? It should not surprise lenders and servicers to learn—they probably already know—that borrowers will indeed present this defense at any time in the case. But when they do, the current law is absolutely clear that it is too late—the defense is waived if, as noted, it has not appeared earlier in the case in a pre-answer motion or in the borrower’s answer.

Comes the state Legislature which believes that borrowers have great difficulty in some majority of cases in determining who is the owner of the loan to determine if the party foreclosing is the right one. So they say. This is not at all the experience of mortgage holders because, however, this is the view of the Legislature, they seek remedial action through the mentioned bill which passed in the assembly in May 2016. While a part of that law is that the defense cannot be made after a foreclosure sale (one must be thankful for small favors) it would be available even after a sale if the foreclosure action proceeded on a default in appearing by the borrower.

So what does all this mean in the end? A borrower would now be free to hold in reserve a usually illusory standing defense until sometime in the middle of the case or at the end of the action. This could be employed as a tactic to garner further delay or to force a settlement. Or, a borrower could choose to default in the foreclosure action, await a foreclosure sale and then launch the defense even after the sale.

If borrowers believe that the foreclosing lender is not really the holder of the note and the mortgage, they are free to raise that defense in an answer and in fact they do, multitudinous times, even without basis. Lenders and servicers will likely be of the opinion that the need for this new legislation is fanciful at best. And it does pose a threat to yet clog and delay the foreclosure process even more in the Empire State.


1. Effective May 24, 2016.

2. The significant infirmities in the lender maintenance requirement are explored in “The Trouble With The Lender Maintenance Obligation,” NYLJ, Aug. 31, 2011, at 5, col 2. For further discussion see 3 Bergman On New York Mortgage Foreclosures §27.12, LexisNexis Matthew Bender (rev. 2016).

3. See inter alia, The Prudence Co v. 160 West Seventy-Third Street Corp., 260 N.Y. 2015 (1932); Holmes v. Gravenhorst, 263 N.Y. 148, 188 N.E. 285 (1933); Colter Realty v. Primer Realty Corporation, 262 A.D.77, 27 N.Y.S.2d 850 (1st Dept. 1941); Title Guar. & Trust Co. v. Feldon Realty Corporation, 149 Misc. 206, 267 N.Y.S. 48 (Sup. Ct. 1933); Goodell v. Silver Creek Nat. Bank, 48 N.Y.S.2d 572 (Sup. Ct. 1944); First Nationwide Bank v. Fouche, NYLJ, June 28, 1995, at 27, col. 2 (Sup. Ct. N.Y.Co., Lehner, J.).

4. CPLR R 3211(e).

5. See inter alia, HSBC Bank USA, N.A. v. Forde, 124 A.D.3d 840, 2 N.Y.S.3d 561 (2d Dept. 2015); Bank of New York Mellon Trust Company v. McCall, 116 A.D.3d 993, 985 N.Y.S.2d 255 (2d Dept. 2014); HSBC Bank USA, N.A. v. Pacyna, 112 A.D.3d 1246, 978 N.Y.S.2d 392 (3d Dept. 2013); Southstar III, LLC v. Enttienne, 120 A.D.3d 1332, 992 N.Y.S.2d 548 (2d Dept. 2014); JP Morgan Mortgage Acquisition Corp. v. Hayles, 113 A.D.3d 821, 979 N.Y.S.2d 620 (2d Dept. 2014). For extensive further citation see 2 Bergman On New York Mortgage Foreclosures §19.07[1]. LexisNexis Matthew Bender (rev. 2016).

Updated 5/24/16: Newsday published an article titled Hempstead adopts law for banks to pay for zombie home upkeep.

Link to article

Additional Resources:
Ordinance No. 46-2016 (full text)
NOTE: Text begins on page 10 of document.

Hempstead Town Board (5/24/16 meeting minutes)
NOTE: Ordinance passage segment begins on page 3 (90) of document.

Legislation Update
May 23, 2016

Local municipalities in the areas hit hardest by the foreclosure crisis have made various attempts through legislation to combat the problem of “zombie properties,” or vacant and abandoned properties in the process of foreclosure.

While the number of zombie properties has been on the decline—the most recent data reported by RealtyTrac showed 1.4 million vacant properties nationwide, with about 19,000 of those properties in active foreclosure—the question of whose responsibility it is to maintain those properties has been a major sticking point between servicers and lawmakers. The longer the properties remain vacant, the more potential they have to become magnets for squatters, vandalism, and violent crime, bringing down property values and lowering the quality of life in their surrounding communities.

Hempstead Town, New York—population 800,000, making it the largest municipality designated as a town in the United States—is proposing a solution to the problem in order to combat the zombie property problem: Hold banks and servicers responsible. Town Supervisor Anthony Santino has proposed a law that would require the servicer of the mortgage provide a $25,000 “security fund” (either by cash, cash bond, or letter of credit) to maintain vacant and abandoned properties that are in the process of foreclosure in compliance with the Hempstead Town Code.

“It’s time for big banks and other financial institutions to ‘do the right thing’ when it comes to ensuring that properties which they have seized don’t become a blight on local neighborhoods,” Santino said. “It’s unacceptable for banks to make big profits on home mortgages and then turn their backs on neighbors by failing to maintain these same properties once they foreclose on them.  That’s why I have come up with a plan that puts lenders ‘on the hook,’ ensuring that they put up ‘security funding’ to guarantee property upkeep of vacant homes.”

Santino said the money would be used to provide maintenance such as lawn care, removal of debris, securing of properties by boarding up windows and doors, graffiti removal, and covering pools, among other items, in the event that “the lender fails in its responsibility to maintain the home.”

Santino’s plan for maintaining zombie properties calls for the servicer to provide $25,000 for each foreclosure initiated and also includes provisions to replenish the security fund as money from the fund is used or depleted, in order to continuously maintain the properties. The proposal from Santino also calls for penalties of up to $1,500 per day for lenders to fail to provide the $25,000 security fund under the proposed law, a Santino spokesperson told DS News.

The legislation will be heard by the Hempstead Town Board on Tuesday, May 24, beginning at 10:30 a.m. EST.

Source: DS News

Additional Resource:
Town of Hempstead (Resolution No. 48-2016 text)
Note: Resolution text begins on page 10.



Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.


Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.


AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.


AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.


AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.


AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.