New York Governor Andrew Cuomo signed AB 10741 into law on June 23, 2016. AB 10741, which is designed to address abandoned homes, known as zombie properties, amends several provisions of New York law and requires mortgage servicers that service first lien mortgages secured by one to four family residential real property units to take specified actions to determine if a secured property is vacant and abandoned, and to maintain properties that are vacant and abandoned. The bill also modifies the settlement conference requirement during foreclosure proceedings, enhances the duty to negotiate in good faith at the settlement conference, and calls for the creation of a Consumer Bill of Rights. The specified requirements to maintain a property include the duty to comply with various requirements of the New York Property Maintenance Code, and to take specific, enumerated measures to secure the property. These measures include mold abatement and winterization.
There is a narrow exemption from the requirements that applies on a calendar-year basis for state or federally chartered banks, savings banks, savings and loans institutions, or credit unions that originate, service, or maintain their own mortgages and have less than 0.3 percent of the total loans in the state that they either originate, own, service, or maintain for the calendar year ending two years prior to the current year.
Initially, when a borrower becomes delinquent, a servicer must determine whether or not the property is vacant and abandoned by inspecting the property within 90 days of the borrower’s delinquency (which is not defined), and then throughout the delinquency every 25 to 35 days, at varying times of the day. A property would be considered vacant and abandoned if at least three consecutive inspections have been conducted in accordance with the law, and at each inspection no occupant was present and there was no evidence of occupancy; and the residential real property was not being maintained in a manner consistent with the standards set forth in specified sections of the New York Property Maintenance Code. Once a property is determined to be vacant and abandoned, the servicer must, within seven business days, take reasonable and necessary actions to maintain the property.
The obligation to secure and maintain the property lasts until the earlier to occur of the following: the occupant asserts his or her right to occupy the property; the borrower files for bankruptcy; a court orders the servicer to stop any maintenance; a homeowner's association or cooperative prevents the servicer from gaining access to the property; the property is sold or transferred to a new owner; the servicer or investor subject to the requirements releases or transfers the lien; or the mortgage note is assigned, transferred, or sold to another servicer.
Reasonable and necessary actions to maintain the property include: replacement of no more than one lock to provide for subsequent access to the property; securing, replacing, or boarding up broken doors and windows; securing any part of the property that may be deemed an “attractive nuisance”—one that is likely to attract children—including water features, refrigerators, freezers, outbuildings, wells, or septic tanks; ensuring pipes, ducts, conductors, fans, and blowers do not discharge harmful substances directly upon abutting or adjacent property; winterizing the property; providing basic utilities to the property; removing and remediating any significant health and safety issues; taking reasonable measures to prevent the growth of harmful mold; responding to government inquiries regarding property condition; ensuring that a required notice is posted on the property; and otherwise maintaining the property consistent with specified provisions of the New York Property Maintenance Code.
The reasonable and necessary action requirements are enforceable by the state Superintendent of Financial Services as well as the local municipality. Penalties for violations include a $500 civil fine per property per day. The law also preempts local laws, ordinances, and resolutions to the extent such laws, ordinances, and resolutions either impose a duty to maintain vacant and abandoned property in a manner inconsistent with the new statutory provisions, or establish related penalties or other monetary obligations, with respect to a state or federally chartered bank, savings bank, savings and loan association or credit union that originates or maintains a mortgage related to such property.
Industry members need to carefully evaluate the obligations of the new law and assess the extent to which they may need to alter lending practices or pricing of loans in New York State.
