New York Attorney General Eric Schneiderman has announced his intention to introduce legislation to compel banks and mortgagees to maintain vacant properties that are abandoned because of delays in the foreclosure process. Mr. Schneiderman claims such legislation is warranted because certain lenders refuse to complete the foreclosure and take possession of properties, dubbed “zombie properties,” because of the financial costs of property maintenance.
Mr. Schneiderman asserts that homeowners often abandon the property before the foreclosure is complete, and that the banks are best positioned to care for it. According to RealtyTrac, a foreclosure in New York takes approximately three years, which is the longest in the nation.
Mr. Schneiderman asserts that action is necessary because zombie properties are susceptible to crime, vandalism, and arson and adversely affect the values of neighboring properties. The proposed legislation would, among other things, compel lenders to pay maintain delinquent properties once they are declared abandoned, and create a state zombie property registry to allow cities to track abandoned homes for code violations.
While we share Mr. Schneiderman’s concern that abandoned properties are a pressing issue for many communities, the proposed legislation has its flaws. Specifically, we are concerned about how the legislation would define the term “abandoned” and the process for declaring a property “abandoned.”
We expect this to be a major battle in the Legislature, as an ambiguous definition may actually increase litigation of foreclosures, as banks would have the financial incentive to dispute whether a property is abandoned. Ultimately, the legislation could actually increase the time to complete a foreclosure.