Safeguard Properties

Servicers Remain Aggressive with Outreach Efforts

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Industry Update
May 26, 2016

Mortgage servicers have still been extremely active with efforts to contact borrowers regarding loss mitigation, despite a lengthy, sustained decline in the number of delinquencies and defaults, according to HOPE NOW, an industry-created alliance of mortgage servicers, investors, counselors, and other mortgage market participants.

Approximately 319,000 homeowners received a non-foreclosure solution (permanent loan modification, short sale, deed-in-lieu of foreclosure, retention plan, or other liquidation plan) during the first quarter of 2016, according to HOPE NOW. The Q1 totals brought the number of non-foreclosure solutions completed by the industry since 2007, when HOPE NOW began tracking the data, up to about 24.9 million. Approximately one-third of those solutions have been permanent loan modifications.

Servicers are doing even more outreach to delinquent borrowers in the areas most affected by the foreclosure crisis after Treasury recently announced the allocation of the final $2 billion in funding under the Hardest Hit Fund authorized by Congress. Also, Treasury’s Home Affordable Modification Program (HAMP), which was created in response to the crisis to help delinquent borrowers remain in their homes, is set to expire at the end of this year. In March, Treasury reported that HAMP has helped 1.8 million families and completed 2.3 million homeowner assistance actions in the seven years of the program’s existence.

“Mortgage servicers have remained aggressive in its outreach to at-risk borrowers, via face to face events, call centers and improved online technology,” said Eric Selk, executive director of HOPE NOW. “As HAMP sunsets at the end of the year, it is critical for all homeowners who are experiencing difficulty with their mortgage to reach out for assistance. We also applaud the Treasury for its announcement to extend the Hardest Hit Funds. These programs provide an important tool when helping families in local markets.”

Of the 319,000 foreclosure prevention actions completed in Q1 by the industry, 86,000 of them were permanent loan modifications and 118,000 of them were formal repayment plans. Of the 86,000 permanent loan modifications, about 62,000 of them were completed through proprietary programs and about 24,00o of them were completed through HAMP, according to HOPE NOW.

“Activities to help families avoid foreclosure has remained strong during the first quarter of 2016,” Selk said. “As mentioned in the data above 3.5 solutions are offered for every foreclosure. This points to a strong set of tools to address and cure delinquency. Permanent modifications increased slightly from the previous quarter while short term solutions such as repayment plans and retention plans increased significantly. Early intervention and direct contact with the borrower has clearly made a huge impact in the overall delinquency numbers. Our data indicates that both permanent and short term solutions remain available to those who are struggling with their mortgage.”

Through the first three HOPE NOW borrower outreach events in 2016 (in Tampa, Jacksonville, and Camden, New Jersey, more than 500 homeowners have been seen, the majority of which were in some form of delinquency. HOPE NOW has more borrower outreach events planned later in the year starting with New York in the middle of July, followed by Atlanta, Miami, and Riverside.

“With general market recovery and stability over the past year, HOPE NOW is concentrating efforts on streamlining the assistance process for homeowners,” Selk said. “We have looked at communication between servicers and homeowners and provided suggestions on improving the customer process. HOPE NOW is also very active in conversations focusing on the loss mitigation world once HAMP expires.”

Source: DS News

Additional Resource:
HOPE NOW (State Loss Mitigation Q1-2016 full report)

Servicers, Pay Attention to Supreme Court?s Ruling

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Industry Update
May 16, 2016

The U.S. Supreme Court issued a ruling on Monday that is likely to affect mortgage servicers. In the case of Spokeo Inc. v. Robins, the Court ruled that consumers must prove that they have suffered “concrete harm” in order to bring a class action suit under the Fair Credit Reporting Act (FCRA), and that consumers cannot bring suits based solely on a bare violation of statutes.

The respondent, Thomas Robins, and others originally filed a class-action complaint in the U.S. District Court for the Central District of California in May 2014, claiming, among other things, that people search engine Spokeo willfully failed to comply with the FCRA requirements by delivering inaccurate information to them after they used it to search for information.

While the Supreme Court ruled that a plaintiff must prove to have suffered “concrete harm,” at the same time, the Court left it entirely up to lower courts to determine exactly what constitutes concrete harm—and implied that it doesn’t necessarily have to be tangible harm.

“The Court further suggested that a plaintiff could be able to show a risk of harm sufficiently ‘concrete’ to support standing based on a statutory violation alone where the harm alleged was based on a long-recognized common-right (for example, slander, libel, and right to obtain publicly-available information),” said Luke Sosnicki, Senior Counsel in the Financial Industry Group in Dykema’s Los Angeles office. “But that’s pretty much where the Court stopped.  With respect to FCRA, the statute at issue in the suit, the only specific example the Court provided as to a published inaccuracy that would not suffice to show a risk of harm ‘concrete’ enough to support standing would be an incorrect zip code; and even that sentence was qualified with a footnote stating that the example does not apply to ‘other types of false information.’”

How does the ruling affect mortgage servicers? Sosnicki said that the ruling is helpful to servicers, but at the same time, it leaves many questions unanswered.

“As just one example, district courts have recently been staying TCPA (Telephone Consumer Protection Act) class actions until Spokeo was decided, reasoning that Spokeo could entirely dispose of these cases,” Sosnicki said. “It hasn’t. Instead, the district courts will now need to decide under what circumstances receiving unsolicited, automated phone calls may constitute ‘concrete’ harm.”

Sosnicki continued, “The same applies to many other statutes applicable to loan servicers. For example, it is difficult to conceive how missing a deadline to send a notice of servicing transfer, a response to a qualified written request, or borrower correspondence under RESPA’s new loss mitigation rules could result in injury in fact.”

One thing the Supreme Court’s decision does is leave the debate open as to whether an untimely response to a request for information, or providing incorrect information that the recipient of the information does not use or rely on, is akin to publishing an incorrect ZIP code or withholding information the plaintiff has a right to receive. In the meantime, the Ninth Circuit Court of Appeals will have a chance to issue an appellate-level decision defining what exactly constitutes concrete harm in the context of the FCRA.

“Other courts will then follow or reject, analyze, and try to apply to other statutes as well,” Sosnicki said. “Ultimately, the issue may return to the Supreme Court with a developed body of caselaw—which may be what the Court intended in the first place.”

Click here to view the Supreme Court ruling.

Source: DS News

Here?s One Way to Fight Zombie Properties

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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.

ENDNOTES:

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.

Five Star?s Delgado: No Semblance of a Crisis

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Industry Update
May 19, 2016

Five Star Institute President and CEO Ed Delgado dove into the default, foreclosure, and REO industries in a webinar presentation on Thursday to advise members of the Federation of REO Certified Experts (FORCE) of past and present market conditions.

The FORCE is Five Star’s organization of residential agents and brokers working in the field of real estate owned (REO) properties.

Recent housing data has continually painted a picture of a recovering housing market, and the same proves true for the REO market. In light of the strengthening housing market, Delgado emphasized the need for adaptation among companies in this space.

The presentation first addressed foreclosure activity, which has declined dramatically over the last six years and is currently near 2007 levels when they hit 300,000, according to RealtyTrac. In 78 major metro areas across the country, first quarter foreclosure activity was below pre-recession levels. Data from capital economics showed that mortgage delinquencies declined 12 percent over the year in March, down to 4.08 percent, its lowest point since March 2007. In addition, Black Knight Financial Services found that 30-day delinquencies stand at just under 2 percent, their lowest level in more than 15 years.

Delgado noted that this data points to a discernible recovery in the housing market.

“The headlines in totality are pointing to an absolute recovery. I don’t think there is any semblance of crisis that remains in the open markets, but there are pockets of risk—some are opportunities and some are not so favorable conditions that may transpire over the next 12 to 18 months,” Delgado said.

When it comes to loss mitigation strategies, the Federal Housing Finance Agency (FHFA) has been making changes to its disposition and loss mitigation strategies. The GSEs have moved away from the bulk sales strategies after shedding some of their REO inventory and are taking advantage of online auctions to dispense some of their REOs. Meanwhile, the FHFA is allowing principal reductions for seriously delinquent, underwater homeowners.

In a separate interview with the Wall Street Journal in March, Delgado discussed how mortgage servicers and REO asset management companies that once thrived after the foreclosure crisis are revamping their image, business practices, and even changing their name in order to adapt to the strengthening real estate market.

“There’s a risk of extinction for companies that are either slow to realize the change in the market or simply don’t adapt,” Delgado told the Wall Street Journal.

Delgado again stressed the importance of default and mortgage servicing professionals having to adapt to the changing marketplace in the webinar presentation. He used Nationstar Mortgage Holdings, Ten-X (formerly Auction.com), and Altisource Portfolio Solutions as examples of companies that are expanding into other areas of the market to avoid extinction as the amount of distressed inventory continues to wane.

“These companies are making changes to fit the current market on a regular basis. All of these organizations are pivoting,” Delgado explained in presentation. “They see that the prevailing winds of change are in full bloom, and they are altering their dynamic, product offerings, and how they engage with consumers and agents and brokers. It’s a trend that I expect will continue in the near term.”

As for additional opportunities in the default servicing market, Delgado pointed to the growing single-family rental market and online real estate auctions that hit the scene a few years ago and have become a major platform, particularly for investor buyers.

In conclusion, Delgado stated that REO is here to stay and will always exist in this country.

“For all the loans that are out there, there will always be excessive debt, illness, divorce, unemployment, or some other disruptive factor within a household that pushes a consumer into foreclosure,” he said.

Click here to listen to the full webinar.

Editor’s Note: The Five Star Institute is the parent company of DS News and DSNews.com.

Source: DS News

Congressional Grants to Aid More Struggling Borrowers

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Industry Update
May 31, 2016

While the foreclosure rate is slowing as a trend nationwide, some pockets are still struggling to recover eight years after the housing crash. The Congressionally-funded National Foreclosure Mitigation Counseling (NFMC) program has just provided another $40 million to assist in the recovery effort for those areas still devastated by foreclosures and where homeowners are still struggling to make mortgage payments.

According to NeighborWorks America, the latest (10th) round of NFMC funding was awarded to 21 state housing finance agencies, 19 HUD-approved housing counseling intermediaries, and 60 community-based NeighborWorks America organizations. The money will go to help provide counseling for at-risk homeowners who are working with their servicers to avoid foreclosure.

It is estimated that approximately 122,000 families will be directly assisted with the latest round of NFMC funding. A study conducted by the Urban Institute showed that homeowners who work with NFMC counselors were nearly twice as likely to cure a serious delinquency or foreclosure, and three times as likely to receive a modification cure.

“The extent of the foreclosure crisis is evident by the strong request for NFMC funding from the housing counseling community,” NeighborWorks America said. “Demand for NFMC grant funds approached $84 million, or more than twice the amount of money that was available in this program round.”

In March, the NFMC program passed a milestone when the two millionth homeowner facing foreclosure received counseling through the program in the eight years of the program’s existence. NeighborWorks America NFMC funds to grantee organizations, which in turn provide the counseling services. The Urban Institute found that homeowners who had been through NFMC counseling and then received a modification saved an average of $4,980 annually.

In addition to directly helping families, NFMC funding also goes toward training foreclosure prevention counselors. According to NeighborWorks America, approximately 1,600 counselors are expected to be trained with the latest round of NFMC funding. At the same time the latest round of NFMC funding was announced, NeighborWorks America released its 13th report to Congress, which summarizes the challenges and successes faced by foreclosure prevention counselors in the NFMC program.

Source: DS News

Assembly Passes Legislation to Combat Zombie Homes in New York State

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Legislation Update
May 24, 2016

Speaker Carl Heastie and Judiciary Chair Helene Weinstein today announced the passage of legislation to combat the rising problem of abandoned residential properties by creating new efficiencies in the foreclosure process and imposing requirements for the maintenance of properties by a mortgagee or its loan servicing agent.

“High foreclosure rates continue to affect homeowners and communities across the state and these challenges are further complicated by the rising tide of abandoned residential properties,” said Speaker Heastie. “The measures passed today will provide stronger protections against predatory foreclosure practices, ensure continued maintenance of abandoned properties and facilitate a more expedient transfer of ownership that does not harm surrounding property values.”

Assembly bill 6932-A the “New York State Abandoned Property Relief Act of 2016”, was produced in conjunction with New York State Attorney General, Eric Schneiderman and sponsored by Assemblymember Helene Weinstein, would facilitate earlier detection and maintenance of vacant and abandoned residential properties as well as:

  • Expand the existing duty of a mortgagee to maintain vacant residential real property to include “pre-foreclosure” vacant properties;
  • Require periodic inspections to determine whether properties secured by a delinquent mortgage have actually been abandoned;
  • Allow localities and the Attorney General to enforce the maintenance of property requirements; and
  • Create a statewide registry for abandoned residential property under the supervision of the state Attorney General and a toll-free hotline for community residents to report the presence of such properties.

“As we continue to experience the devastating impact of the Recession on homeowners, it is critical that we pursue every avenue to help New Yorkers to remain in their homes,” said Assemblymember Weinstein. “Unfortunately, so many properties that have already been abandoned go on to become a burden and an eyesore to the surrounding community. These measures would strengthen the rights of homeowners in foreclosure proceedings and require banks and their mortgage servicers to continue maintenance of the abandoned properties they own so as to prevent any further neighborhood destabilization.”

The growing problem of so-called ‘zombie homes’ or abandoned residential properties is affecting many of New York’s communities, particularly in rural and suburban regions where low property values provide little incentive for banks to settle costly and time-consuming foreclosure proceedings. Trends have shown that unscrupulous mortgage lenders often engage in predatory and deceptive business practices against borrowers in an effort to force them from their homes. Additionally, they have permitted delinquent mortgaged residential properties that are vacant and abandoned to fall into disrepair at which point they begin to negatively impact the surrounding property values. Last year, the Attorney General estimated that there were as many as 16,700 homes that were zombie foreclosures. These properties are extremely costly to local governments who are left with the responsibility of securing them at tax-payer expense. If enacted, these measures would go a long way to protect the rights of homeowners, expedite the foreclosure process, and protect the investments of hardworking New Yorkers who live in affected communities.

The other measures passed today would protect the rights of homeowners by extending their currently limited right to challenge the legality of a foreclosure proceeding so that it may be exercised at any point throughout the process (A.247) and lastly, would clarify various provisions of law relating to mandatory settlement conferences in residential foreclosure actions (A.1298) to afford greater protection to homeowners.

Source: New York State General Assembly

Additional Resource:
New York State Assemblyman Anthony Brindisi (Brindisi-Sponsored Bill to Combat Foreclosed ‘Zombie’ Properties Passes in the State Assembly)

A069323-A/S04781 (full text)

A.247 (full text)

A.1298 (full text)

Zombie Foreclosures and the Crucial Role of Judges

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Industry Update
April 4, 2016

Clouded property titles invite neighborhood blight. Simple steps by the courts can produce huge results.

In February, RealtyTrac reported that one in four U.S. foreclosures are “zombies”: homes where the owner has vacated the property but the lender isn’t proceeding diligently to end the case and so hasn’t taken ownership. With the title clouded, neither the lender nor the owner maintains the parcel, so it falls into disrepair and becomes a blighting influence on the neighborhood.

The hardest-hit states include California, Florida, Illinois New Jersey, New York and Ohio, but zombies can be found everywhere. While some states have laws shortening the foreclosure process for an abandoned parcel, the fix that’s needed isn’t solely one for legislatures. The courts also play a crucial role. Improved judicial supervision of mortgage-foreclosure cases can prevent zombies, lessen blight and strengthen neighborhoods.

Judges can take simple steps to net huge neighborhood-improving results by exercising the court’s power to control court dockets and manage cases. They can, for example, ensure that lenders’ lawyers who file foreclosure cases move them along to completion by requiring periodic scheduling conferences to ensure progress. Courts adopting these steps will be reinforcing the rules of professional conduct that all lawyers must follow anyway under the American Bar Association’s Rules of Professional Conduct: to diligently advance lawsuits to completion and refrain from acting in a way that causes harm to others.

So why do so many foreclosures still move so slowly that they leave zombies scattered across so many of our neighborhoods? While each state’s mortgage-foreclosure law is unique, there are commonalities: the lender’s lawyer files a foreclosure complaint, the lender gets a judgment of foreclosure, and the judgment starts a redemption period in which the owner can pay off the loan to stop the foreclosure. If the owner doesn’t redeem, the parcel gets scheduled for auction or sheriff’s sale and the property is sold to the high bidder.

Note the anomaly. Unlike other litigation, in which the judgment ends the case, in mortgage-foreclosure litigation there are post-judgment steps to accomplish before the case can come to a true end. Judges in foreclosure cases must make sure that those post-judgment steps actually happen, and that they happen as quickly as possible.

Lenders and their mortgage-servicing companies would seem to have incentives to bring foreclosure cases to induce loan payoff. Many times, however, filing the case doesn’t achieve that goal. This is especially so in distressed urban neighborhoods where home values and conditions have declined. In those situations, it’s unlikely that bidders at an auction will offer an amount to reasonably minimize the lender’s losses from missed mortgage payments. Lenders don’t want to add to their inventories more bank-owned parcels that they have to maintain, repair, manage and try to sell. So some lenders let cases linger, zombie-izing the properties.

It is at this point, in the post-judgment, post-redemption period, when a court can and should step in. The court should require the lender to advance the case and schedule the post-judgment auction sale. If no one wishes to bid, then the court should make the lender dismiss the case and satisfy the mortgage to finalize the case and remove the litigation cloud on the title, leaving the defendant/owner clearly responsible for the parcel. One way or another, the lender that invokes the judiciary by filing a foreclosure lawsuit must be held accountable by the court to finish the case.

Courts in Milwaukee County, Wis., and Cuyahoga County, Ohio, are among those that are working aggressively to make that happen, mandating periodic scheduling conferences to ensure that foreclosure cases advance and don’t stall. It works. “We move properties fast,” says Judge Nancy Margaret Russo of Cuyahoga County’s Common Pleas Court. “Neighborhoods are safer.”

Clearly, improved judicial supervision of mortgage-foreclosure cases can prevent zombie foreclosures, lessen blight and strengthen neighborhoods. Simple steps, huge results.

Source: Governing.com

Topeka Touts Legislation to Aid in Taking Control of Abandoned Property

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Updated 4/11/16: The office of Governor Sam Brownback issued a press release titled Governor Sam Brownback’s veto of Senate Bill 338 defends individual liberty and property rights.

Link to article

Legislation Update
April 5, 2016

Bill passed by Legislature expands definition of abandoned property

The City of Topeka took a backhoe to a house in the Hi-Crest neighborhood Tuesday, reducing it to splintered rubble — one action among several that cities may be able to take more quickly under legislation before Gov. Sam Brownback that eases the path for municipalities to possess abandoned property.

The house, and the property it sits on, had been named in multiple weed cases over the past year, a sanitation case and, ultimately, was ruled an unsafe structure. The city says it never found the owner. Records show the owner is dead.

Senate Bill 338 expands the definition of abandoned residential property to include houses that have been unoccupied for at least a year and have a blighting influence on surrounding property. Under current law, residential property must be delinquent on property taxes for two years and have been unoccupied for 90 days to be considered abandoned.

The legislation would effectively shorten the time before a city can take action on a property. That might mean landscaping or repairs. But it may sometimes mean demolition — like at 231 S.E. 33rd Terrace, where the city summoned reporters Tuesday to observe the teardown.

More than 700 vacant houses sit throughout the city, many concentrated in older neighborhoods near the city’s core. The city formed a unit earlier in the year to evaluate the properties and help determine if they are potentially abandoned.

Topeka has budgeted $400,000 this year in an effort to potentially demolish up to 40 houses, city spokeswoman Aly Van Dyke said.

The city says the legislation provides a way to protect neighborhoods and improve public safety while still protecting the rights of property owners. Opponents call the legislation an “egregious overreach” by government.

Under the bill, the city — with approval of the city council — could file a petition with the district court to allow a nonprofit organization temporary possession of a property. Right now, a nonprofit can only take control of a property to rehabilitate housing. The legislation allows it to assume possession for infrastructure, parks and parking facilities. The nonprofit would then be able to seek ownership after a year.

The House passed the bill 79-44. The Senate approved it 32-8. Brownback has several more days to decide whether to sign or veto the bill. The governor’s office doesn’t typically say in advance what action he will take on a bill.

The changes prompted cries of protest from lawmakers who voted no. In both chambers, the bill split Republicans and Democrats. House Speaker Ray Merrick and House Majority Leader Jene Vickrey both voted against the proposal.

“SB 338 circumvents our current eminent domain statutes by redefining ‘abandoned property’ and by allowing our local governments to expeditiously confiscate, seize or destroy law abiding citizens’ private property without compensation, adequate notice, and a legal property title,” a bipartisan group of representatives said in a statement explaining their opposition.

“This is an egregious overreach that deprives some citizens of their private property rights without sufficient due process and it will cause irreparable harm to our most vulnerable citizens that do not have the resources to protect their property.”

Not so, argues Whitney Damron, a lobbyist for the City of Topeka. The legislation allows the owner to intervene at any point during the proceedings and take steps to regain control.

Nonprofit organizations seeking to take possession of an abandoned property must be in existence for at least three years, a step Damron said addresses concerns that organizations could form for the purpose of getting into the business of taking over abandoned properties. The bill also sunsets after four years, ensuring legislative oversight, he argued.

“It really goes above and beyond to try to bring the rightful owners back into the situation, back into the court, take responsibility for the property and protect their neighbors. Because the neighbors are the ones who truly suffer when we have issues like this,” Damron said.

Damron said he believes cities will use the new law responsibly. No city is likely to implement a wholesale program to tackle potentially abandoned homes because of the costs, he said.

He indicated what is likely to happen is that neighborhood improvement associations will bring individual properties to the attention of a city council.

“This is not a situation where we have code issues with residents, tenants and landowners,” Damron said. “These are situations where the owners literally cannot be found.”

Source: The Topeka Capital-Journal

Additional Resource:

SB 338 (full text)

Portland Signals More Aggressive Approach to Vacant, Abandoned Homes

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Industry Update
April 5, 2016

Portland announced Tuesday that it wants to be able to foreclose on abandoned, vacant and derelict homes or ask courts to place the so-called “zombie houses” under the control of a third party, paving the way for properties to get cleaned up and put back on the market.

The extent of the problem isn’t clear — city officials couldn’t provide specific numbers, including the total number of “zombie homes” in Portland — and solving it would require navigating a complex paper trail of ownership records, mortgage debts and lien payments. But during a City Council work session Tuesday morning, Mayor Charlie Hales signaled Portland will take a more aggressive tack in dealing with landowners who let homes slide into disrepair and become havens for squatters or drug use.

“What a disconnect that in a city with a red-hot housing market…where you can sell property for a very good return, we have zombie houses,” Hales said. Commissioners Dan Saltzman, Amanda Fritz and Nick Fish indicated they supported Hales’ plan. (Commissioner Steve Novick was absent.)

Portland hasn’t foreclosed on a home since 1971, city officials said. Hales thinks it’s time the city at least threatened to deploy the tool again.

Any foreclosure action would be lengthy and pose a steep challenge for the city. Portland could foreclose on unpaid liens resulting from code violations or fees. But a property owner, without addressing the underlying problems, could easily avoid losing possession of the home by simply getting current on lien payments. Secured creditors like banks would also have the ability to intervene and take control of the foreclosure process themselves before the city could take ownership.

The other option, city staff said, is for Portland to lobby the courts to appoint a receiver, who could temporarily take title to a derelict property until it is brought into compliance with city codes. The receiver could be a local nonprofit such as Proud Ground, whose executive director Diane Linn appeared before commissioners to support the idea.

The receivership model has been successful in cities such as Baltimore, said Zach Klonoski, one of Hales’ policy advisers. Often, the property owner will appear “at the drop of a hat” to resolve code issues after a jurisdiction threatens receivership action.

Sally Bowman, who moved to East Portland in 2009, has been dealing with squatters next door for years, she told commissioners. The empty home is near an elementary school and has become a magnet for drug use, trash and graffiti.

“I have four kids now,” Bowman said. “I don’t want to let my little kids out in the yard. What are they being exposed to?”

City staff also recommended that commissioners revisit whether to establish a registry of vacant properties, an idea floated by former Mayor Sam Adams that was eventually abandoned.

Portland Police Sgt. Randy Teig said law enforcement officials manage 375 distressed properties in the East Precinct, a large area stretching from Cesar E. Chavez Boulevard to as far as Southeast 174th Avenue. More than 400 homes have been boarded up since early 2014, he said. Meanwhile, the Bureau of Development Services is monitoring 25 abandoned homes they consider to be among the city’s worst cases.

Police officials have spent hours boarding up and responding to zombie homes — time that could be better used fighting gang violence, Hales said. And during a building boom, the development bureau’s employees have stayed busy tracking code violations at derelict houses and evaluating enforcement measures. The city could save “a fortune” if the homes were restored and then sold or rented to long-term residents, and the positive impact on neighbors would be “priceless,” Hales said.

As it stands now, “we are the property managers for slumlords,” Hales said. “They’re worse than slumlords, because at least slumlords have paying tenants.”

Source: The Oregonian

Pennsylvania Considers Fast-Tracking Vacant and Abandoned Property Foreclosures

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Legislation Update
April 5, 2016

AN ACT

Providing for the certification of mortgaged property as vacant and abandoned in an action for mortgage foreclosure, possession, quiet title or similar action to enforce an obligation in a mortgaged property, for effect of certification and for additional sheriffs’ fees.

The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:

Section 1. Short title.

This act shall be known and may be cited as the Vacant and Abandoned Real Estate Foreclosure Act.

Section 2. Legislative findings and purpose.

The General Assembly finds and declares that:

(1) Vacant and abandoned real estate, coupled with a default in the obligation to make mortgage payments secured by that real estate, presents a danger to the health, safety and welfare of a community.
(2) Vacant and abandoned real estate often is not repaired, restored and returned to productive use until either a creditor or municipality acquires title to the real estate.
(3) An accelerated procedure is needed to maintain the due process rights of owners of real estate and to reduce unnecessary delays in an action of mortgage foreclosure or an action for possession or similar actions to recover real estate that is vacant and abandoned.

Source: Pennsylvania General Assembly

Additional Resources:

HB 1954 (full text)

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