Zombie Property Bill Advances
Momentum appears to be growing for zombie property legislation. Legislation has advanced to the Assembly floor (A.6932A/ S.4781A) that would make mortgage lenders responsible for maintaining “vacant and abandoned” property on which they have not yet foreclosed. It would also make lenders responsible for property they are in the process of foreclosing on because the borrower has failed to maintain the property.
The bottom line is that financial institutions would be on the hook for maintaining property even if they haven’t completed or even started New York’s byzantine foreclosure process, an obstacle course that takes several years to complete.
This is a lousy idea for several reasons. For instance, it effectively denies the lender the right to determine whether or not vacant and abandoned property is worth foreclosing. It also creates even more foreclosure complexities and opens the door for lenders to indirectly subsidize maintenance projects for which localities should be responsible.
The sponsors deserve credit for proposing to streamline foreclosures for zombie property. However, if legislators feel the need to go forward, the legislation should be amended to mitigate its shortcomings. Most importantly, the legislation should clearly stipulate that “vacant and abandoned” property is not subject to foreclosure defenses so that lenders can at least quickly obtain title to property for which they are responsible. Currently, the legislation is needlessly ambiguous on this point. It creates a streamlined foreclosure for vacant property, but also provides that this fast track system “shall not abrogate any rights or duties pursuant to this article.” Why not? The property is abandoned.
Furthermore, the fast track won’t apply in instances where the defendant has responded to the foreclosure. This makes sense, except the legislation should make clear that if a homeowner mounts a foreclosure defense only to subsequently abandon the property, lenders can still fast track the foreclosure.
There also needs to be responsible parameters describing what proper maintenance entails. Anyone involved in mortgage lending has heard stories of foreclosed property being gutted by the delinquent homeowner. Should a foreclosure come with a huge price tag for repairing these properties? I don’t think so.
Happy Days For MBL Lenders
NCUA sent out a notice yesterday reminding credit unions that they no longer have to get a personal guarantee when making Member Business Loans. This change is the first step in implementing amendments to give credit unions greater flexibility when making MBL loans. Remember NCUA still considers personal guarantees a good idea, so you should have a policy explaining the circumstances under which they will not be required by your credit union.