Lawsky: NY’s Foreclosure Process Broken
The debate over New York’s broken foreclosure system and what to do about it took a major step forward yesterday with a speech by Superintendent Lawsky in which he proposed several needed reforms. The speech, legislation introduced by the Attorney General, and the announcement that several major lenders, including Bethpage Credit Union on Long Island, have agreed to adopt best practices for abandoned property-including the creation of a vacant property registry means that foreclosure reform will be a high-profile issue for the Legislature as this year’s session enters its final weeks.
First, let’s be honest the system is broken. The average foreclosure takes over 900 days to complete after a notice of foreclosure has been filed and policymakers are growing increasingly concerned about abandoned property for which homeowners no longer take responsibility. Unfortunately the issue has largely been framed by housing advocates who believe that all banks are inhabited by Scrooge’s anxious to steal homes at the first sign of delinquencies and who believe that there is no problem that can’t be solved by requiring lenders to provide just one more disclosure.
In contrast, in his speech, which was accompanied by the release of a report on New York’s foreclosure process, Lawsky was clearly trying to highlight areas of consensus when it comes to foreclosure reform: “we believe there are some sensible and responsible changes we can make to improve our broken foreclosure process that will benefit homeowners, lenders, and our local communities.” He pointed out that “although it may not be immediately obvious; our current system hurts virtually everyone involved in the foreclosure process.”
Since 2007, NY law has mandated that lenders and delinquent borrowers work in “good faith” to negotiate a resolution to delinquencies without foreclosure. Last year there were 115,000 such conferences. The problem is that these settlements can take months to schedule and when they actually do take place the law doesn’t define what good faith is. The Superintendent is proposing defining “good faith” and authorizing specific penalties for noncompliance.
In theory these reforms make sense but I would rather see them limited to stricter penalties for both lenders and borrowers when they don’t show up at these meetings prepared and authorized to negotiate. To me a borrower who chooses not to show up at a court ordered conference, or a lender whose representative is authorized to do nothing but imitate a potted plant should be subject to swift and clear penalties. The good faith part of the discussion will take care of itself.
On Monday the Governor announced that a group of major lenders had agreed to voluntarily deal with abandoned or Zombie property. Under the plan as described in a press release the lenders will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and abandonment, and then every 30 days thereafter. If the property is determined to be vacant and abandoned, lenders will secure the home by changing the lock, replacing or boarding up windows, posting the property with contact information, and eliminating other safety hazards. Then, on an ongoing basis they will monitor the property’s condition to ensure it remains secure and that it complies with applicable provisions. This is similar to the AG’s proposal.
Yesterday the superintendent argued that the creation of the registry should be coupled with a push to expedite foreclosures involving abandoned property.
“Lenders who can prove that the property is in fact abandoned will be able to fast-track their foreclosure actions. In return for taking advantage of this expedited process, lenders will be legally responsible for maintaining the property during this faster foreclosure process, rather than waiting until the process concludes. It is a fair trade-off.”
Here are links to the speech and the Governor’s announcement.