Giving financial institutions more responsibility will not help in eliminating abandoned houses, also known as zombie properties.
That is the opinion shared by both state Assemblyman Andy Goodell, R-C-I-Chautauqua, and state Sen. Catharine Young, R-C-I-Olean, who oppose Attorney General Eric T. Schneiderman's Abandoned Property Neighborhood Relief Act. The legislation aims to provide support to communities plagued by vacant and abandoned properties. Among other measures, the bill would make lenders and banks responsible for delinquent properties soon after they are abandoned - not at the end of a lengthy foreclosure - and require lenders to pay for their upkeep.
Goodell said making financial institutions maintain properties during the lengthy foreclosure process at the expense of the homeowner would result in higher liability to delinquent homeowners and higher interest rates to all other consumers. He said the main problem is the time it takes for financial institutions to foreclose on a property.
"The solution to this problem is to amend mortgage foreclosure procedures so banks move in a reasonably efficient manner to foreclose on properties when there is no realistic possibility for the owners to pay the mortgage," he said. "Efficient foreclosure process would result in the banks receiving higher price for the property, which reduces the amount still owned by the homeowner and would result in the homeowner owing much less in late fees, penalties and interest."
A zombie property occurs when a homeowner falls behind on their mortgage or property taxes and abandons the property. They then no longer maintain it and the property falls into disrepair. Goodell said this situation is a direct result of the lengthy time it takes for the mortgage foreclosure action to go through the court system. He said following the mortgage crisis of 2008, many states, including New York, added a number of procedural hurdles for banks to complete before foreclosing on a residential property.
"The net effect of those additional procedures was to dramatically increase the time for a bank to complete a foreclosure," he said. "The national average length of time for a mortgage foreclosure was 572 days, or about 19 months, during the first quarter of 2014. In New York, a mortgage foreclosure averages an astounding 986 days, or about 2 years and 8 months."
Goodell said Schneiderman's bill would also allow property owners to stay in their homes throughout the foreclosure process. One measure of the bill states financial institutions and mortgage companies have to notify homeowners that they can stay in their home until a court order removes them from the house.
"This would allow some delinquent homeowners to further delay a foreclosure action while demanding the bank repair and maintain their property," Goodell said. "For example a homeowner files bankruptcy, under the attorney general's approach the homeowner could stop paying their mortgage and get the bank to maintain the property, who will pass that cost on to everyone else."
Young said the state Senate has already passed an alternative bill this session to address abandoned residential properties that are in the foreclosure process. State Senate bill s.5719 is a better solution because it avoids legal quagmires that would be created by Schneiderman's bill, Young said.
"The Senate solution is to expedite the process so that abandoned properties are put back on the market quicker, before they have a chance to further deteriorate," she said. "Our bill better protects the economy, communities and taxpayers because it is a less costly alternative that preserves property values more effectively."
Young said the attorney general's proposal would impose uncertain and unworkable mandates on financial institutions, and that's why economic development organizations such as the New York State Business Council oppose the bill.