Terrifying new legislation designed to fight zombie foreclosures in New York just passed the assembly there. Lenders, beware! Property owners and investors in New York need to pay close attention as well.
Assemblyman Angelo Santabarbara, a democrat from New York, proudly announced last week that his legislation to help local communities solve the problem of abandoned properties, otherwise known as “zombie foreclosures” has passed the Assembly.
The legislation, called the New York State Abandoned Property Neighborhood Relief Act of 2016, was championed by Attorney General Eric Schneiderman, and ensures that properties stuck in the long, drawn-out foreclosure process are properly maintained.
After all, neighboring homes get attacked by these zombie foreclosures, sucking out their value and attracting vagrants and vandals to the area. Currently, local governments have been responsible for the upkeep and costs of these zombies.
Santabarbara said, “This legislation will help keep families in their homes, protect our neighborhoods and strengthen local communities. Upstate cities like Schenectady remain focused on revitalization efforts and are making significant investments to strengthen our neighborhoods. It was important to fight for the passage of this legislation that will provide much-needed support to local municipalities, families and homeowners that have seen blight and declining property values and have been fighting the ‘zombies’ for too long.”
The legislation is designed to help municipalities protect themselves from zombie properties by creating a statewide registry of the properties and require banks and mortgage lenders to report them.
It would also create a new fund, which would use money collected by the Attorney General’s Office through enforcement actions to provide aid to these municipalities.
“These zombie properties are just that – zombies that take away the vibrancy of our communities and our local governments are being hit with the cost to maintain them,” Santabarbara added. “I’ll continue to fight for this legislation until it becomes law, so that we can help our neighborhoods fight off the ‘zombies’ and keep them out of our communities.”
While he sounds like a real hero… he’s really only pointing fingers at a scapegoat rather than addressing the real problem. Instead, he should turn those fingers and point to himself. Government is creating these zombies that government now wants to fight.
Let me explain.
If this bill passes, it would require lenders and servicers to maintain properties once they become vacant and abandoned.
After all, it’s the banks fault right? They lent money on the property and they should pay for that mistake. And if they don’t, the bill suggests charging lenders $1,000 per day for non-compliance.
Whoa! Step back.
What happened to the homeowner who borrowed the money and stopped paying it back?
Didn’t the bank have an agreement that if the borrower didn’t pay back, the lender could take the collateral in return? Why, yes. However, government legislation prevents that, or makes it REALLY REALLY hard to do so.
New York is a judicial state, which means foreclosures have to go through a court system. It can take well over 3 years for a bank to foreclose, take back the collateral and resell it on the open market.
During that time, the owner can live in the property without making payments or can just walk away from the obli,gation altogether. Thus, a zombie is born.
How about simply allowing banks to fulfill their contracts with borrowers who stop paying? How about making the borrower pay for the damage he or she did by abandoning their property and financial obligation?
With potential laws like this, made by politicians who appear to know nothing about business or economics, it’s very likely that lenders will simply leave the state. Otherwise, they would face far too much legal risk, not to mention an unfair financial burden.
It’s simply unfair that they be forced to maintain vacant and abandoned properties that they don’t even own, for which they are receiving no payment in return for money lent, and which they cannot sell them to recoup their losses because the government won’t let them foreclose. And they can’t rent them out for cash flow to cover holding costs, because again, they don’t own them.
Now, it’s entirely possible that if lenders did exit New York, legislation might pass a law requiring them to come back. That’s how it works in highly regulated states – otherwise known as semi-communist.
Seriously, people, have you heard of the dumbing down of America? This is it!
Whatever happened to personal responsibility?
Someone borrows money to buy a house, stops making their payment, but the lender is fined?
The New York Mortgage Bankers Association is meeting next week in Albany to give their strong and heated opinions on the topic. Lenders doing business in the state of New York should immediately contact their New York State Senator to oppose this bill.
According to Realty Trac’s Q2 2016 U.S. Residential Property Vacancy and Zombie Foreclosure Report, the top States for Zombie Foreclosures are New Jersey, New York, Florida, Illinois and Ohio. No surprise! These are all judicial states that make it very tough to foreclose.
There are 1.4 Million vacant properties nationwide, which is up 2.7% from Q1. That represents 1.6 percent of all residential properties.
Investment properties account for 75% of these vacant properties, but keep in mind that may be partly due to investors fixing up properties between tenants or before a sale.
Among metropolitan statistical areas with at least 100,000 residential properties, those with the most zombie foreclosures were New York (3,526), Philadelphia (1,744), Chicago (857), Miami (651) and Tampa (627).
The report also shows that 19,187 U.S. residential properties actively in the foreclosure process were vacant (zombie foreclosures), representing 4.7 percent of all residential properties in foreclosure — down 3.1% from the previous quarter and down 30.1% from a year ago.
“Lenders have been taking advantage of the strong seller’s market to dispose of lingering foreclosure inventory over the past year, evidenced by 12 consecutive months of increasing bank repossessions ending in February and now evidenced by these numbers showing a sharp drop in vacant zombie foreclosures compared to a year ago,” said Daren Blomquist, senior vice president at RealtyTrac. “As these zombie foreclosures hit the market for sale, they are providing a modicum of relief from the pressure cooker of escalating prices and deteriorating affordability that have defined the U.S. housing market in recent years.”
States with the most vacant “zombie” foreclosures were New Jersey (4,003), New York (3,352), Florida (2,467), Illinois (1,074) and Ohio (1,064).
Metro areas with at least 100 zombie foreclosures that posted the highest zombie foreclosure rate (percent of foreclosure properties that are vacant) were St. Louis, Missouri (10.6 percent); Indianapolis, Indiana (10.2 percent); Albany, New York (9.8 percent); Baltimore, Maryland (9.7 percent); and Portland, Oregon (9.7 percent).
Vacant bank-owned properties were actually down 5% from the previous quarter. A total of 43,602 U.S. bank-owned (REO) residential properties were vacant as of May 2016, representing 15.9% of all REO residential properties.
Metro areas with the lowest vacancy rates were San Jose, California (0.2%); Fort Collins, Colorado (0.2%) Provo, Utah (0.3%) – trust deed states where foreclosures could take place immediately upon non-payment. No wonder trust deed states recovered more rapidly than judicial states.
As frustrating as this government interference is, it also offers a great opportunity to real estate investors. We can buy these now dilapidated properties for cheap, fix them up to like-new condition, and rent them out for high cash flow. Plus, we are cleaning up neighborhoods that these government policies messed up.