Legislation Passed To Help Zombie Property Issue
The state Legislature has passed another piece of legislation to deal with the problem of zombie properties — though several Republicans wondered if the legislation would do more harm than good.
The Zombie Property Remediation Act of 2019 was approved 122-24 on the floor of the state Assembly on June 20 and 48-14 on the floor of the state Senate on June 14. It will be sent to Gov. Andrew Cuomo for his approval.
Floor debate on the legislation was at times contentious, with Republicans peppering Assemblyman William Magnarelli, D-Syracuse and the legislation’s Assembly sponsor, with questions about how the bill would affect the current foreclosure process.
Magnarelli’s bill stipulates that if a property has been deemed vacant, a municipality can begin a legal proceeding to compel banks to begin foreclosure within three months and meet all deadlines to make sure the case is resolved within a year. If a foreclosure case on the abandoned property has begun, the bank must file the necessary motions and within three months file paperwork to move the case to judgement foreclosure or issue a certificate of discharge within three months and file a satisfaction of the mortgage with the appropriate local offices.
State Assemblyman Andrew Goodell, R-Jamestown, was among the Republicans with questions about the legislation.
Goodell questioned if the legislation would allow a municipality to bring an action before the bank has begun foreclosure or if the property is abandoned but not in default because the mortgage is still being paid.
“How would the municipality know whether or not the note was in default?” Goodell asked during the floor debate. “I’m confused. How would a municipality know whether or not the note owed by the homeowner was actually in default? This says if the property is deemed to be abandoned, a municipality could bring a lawsuit against the bank and force the bank to foreclose. But the bank can only foreclose if the note is in default and it’s possible the homeowner is making payments on the note even though the property is abandoned. So my question is how would a municipality even know whether or not the note is in default?”
Magnarelli’s response was short.
“I can’t answer that,” Magnarelli said. “I guess that would be their defense once the action was brought, that they couldn’t bring the action.”
Goodell also questioned the use of local taxpayer money being used to file lawsuits against banks to prompt faster foreclosures, if the law would allow for enough mandatory settlement conferences during the foreclosure process to allow homeowners to work out problems with delinquent mortgages and how the state could compel banks to change the terms of existing contracts. Mortgages currently don’t have language stipulating that a bank has to make sure a home is kept up to local zoning and building codes while banks have the option to foreclose. Goodell argued that the Zombie Property Remediation Act of 2019 changes those contracts with no negotiation.
“So how do we comport that with the U.S. Constitution which says we cannot change the terms of an existing contract?” Goodell asked. “Does this law only pertain to mortgages that occur after this date?”
Magnarelli’s reply — “It’s not in the contract, but it’s in this legislation.”
Republicans also raised the issue of the state’s Community Reinvestment Act and the state’s Mortgage Foreclosure Prevention Act. The Community Reinvestment Act requires banks to meet the credit needs of all communities, including low- and moderate-income areas while the Mortgage Foreclosure and Prevention Act made it more difficult for banks to foreclose on properties during the height of the sub-prime mortgage crisis in 2008-09. Assemblyman Andrew Raia, R-Northport, said the state has the longest foreclosure process in the country due, in part, to changes included in the Mortgage Foreclosure Prevention Act and wondered if banks could meet the timelines in the Zombie Property Remediation Act of 2019 while living up to the Mortgage Foreclosure Prevention Act. The state also passed a Zombie Property Remediation Act in 2016 that requires mortgage holders to inspect, secure and maintain mortgage delinquent properties; requires banks to register vacant and abandoned properties with the state property registry; allows banks to complete an expedited foreclosure for abandoned property; and enhanced consumer protections to protect homeowners.
“Let’s get rid of all those zombie homes and what have you,” Raia said. “I’d like to see a lot of them repurposed for veterans and things like that. I am just a little concerned because as a result of actions that this body has taken we now are a state that takes the longest to foreclose on a piece of property. Unfortunately as a result of that you now have an issue here where homes remain vacant, buildings remain vacant for up to a year before you can even get a settlement. I thought the zombie law that we did was very good. It allowed towns to go after the bank. If I’m not mistaken you actually have to post on the front door who the owner is, who the bank is, if there’s a phone number to get to them and it should be very easy for a municipality to just reach out to the bank and say we’re going to hammer you if you don’t do what you’re supposed to do and clean up this property. I am a little concerned that we’re trying to weaken the laws that we’ve already passed, but I also understand that it’s as a result of those very laws that we need to go back in and essentially modify it. I would be concerned about this. I would urge a no vote just because I think the process is already there to have the local government compel the banks to maintain the property without the potential of them losing their investment.”
Assemblyman Andrew Garbarino, R-Sayville, agreed with Raia that current law is sufficient to police zombie properties while raising the point that current law allows municipalities to do lawn maintenance on an abandoned property and then add that cost to the property’s tax bill. If a bank stops paying property taxes on the abandoned property, municipalities would no longer have a way to pay those maintenance bills. Garbarino also wondered how making discharging or satisfying mortgages would actually help the zombie property problem since the owner would remain the property owner who has abandoned the property.
Goodell argued the law could Zombie Property Remediation Act of 2019 could end up backfiring. Rather than addressing the problem of zombie properties, Goodell said, the law could result in banks lending less money to people with less-than-stellar credit scores.
“Every time we go back to the bank and say, ‘You know, you were so foolish to lend money to that type of person or a person with those economics, hat income, that credit score and background, you lent money to that person, they stuck you so now we’re going to stick you, the bank, with more expense,'” Goodell said. “Every time we do that the banks tighten their underwriting criteria and they require a higher credit score and they require more security and they require more downpayments. Every time you do that, the people who are trying to get their first home, who are on the edges of society, they get written out of the market.”
Goodell also said it is time for the state Legislature to rewrite the state’s foreclosure laws so that the system works for someone other than real estate attorneys.
“It’s as a result of all those complex processes that we all put in and never take back out again that we end up with the situation we’re talking about here — zombie properties,” Goodell said in the start of his statements on the bill, before closing with this, “So while I’m compassionate to the problem with zombie properties, passing a law that violates the contractual relationship and incurs legal fees on the part of the administering municipality, requires banks to submit to foreclosure under time frames it can’t reach under this court process, it’s not the answer. I hope at some point we as a legislature have the courage and the wisdom to streamline the mortgage foreclosure process so that everyone can come out better in the future.”