Three years ago today, the MuniBlog shared an article in the New York Law Journal by Harris Beach partner Leon Sawyko regarding "zombie houses" and the problems they posed for municipalities throughout the state, and potentially for lenders holding mortgages on these properties.
On June 23, 2016, Governor Andrew Cuomo signed into law legislation to address the threat posed to communities by vacant and abandoned "zombie properties". The law went into effect December 20 of that year, addressing the issue of zombie properties in several ways: imposing inspection (with some exemptions), maintenance and reporting requirements on mortgagees, or their servicing agents holding mortgages on these properties; and requiring mortgagees or their agents to register vacant and abandoned properties with New York state’s property registry.
Vacant and abandoned property laws
With regard to inspection, maintenance and reporting, the Abandoned Property Relief Act requires mortgagees or their servicing agents to inspect one-to-four family residential properties within 90 days of when the corresponding mortgage loan falls into delinquency, and to conduct follow-up inspections every 25 to 35 days thereafter. If the mortgagee or servicer determines that the property is vacant and abandoned, as defined in the law, the mortgagee or agent must:
• Post the required notice on the property
• Monitor the property for, among other things, any change to occupancy and to ensure the notice remains posted for as long as the mortgagee’s maintenance obligations remain in effect
• Assume obligations to maintain and secure the property, as detailed in the regulations adopted by the state’s Department of Financial Services (DFS)
• Provide to DFS pertinent information regarding the property for inclusion in its vacant and abandoned property registry
DFS may pursue violations, as may the municipality where the property is located. Violations may be heard by a hearing officer or a court of competent jurisdiction. If a violation is found to exist, a civil penalty may be issued in the amount of up to $500 per day, per property. The municipality may also, upon notice to DFS, enter and maintain the property and, in that event, have a cause of action against the mortgagee or servicer to recover costs incurred in the process.
Zombies in Gloversville
DFS recently flexed its enforcement muscle when it entered into a consent order whereby SN Servicing Corp., a New York state-registered mortgage loan servicer, was fined $100,000 for failing to maintain two properties in Gloversville as required under law. Local fire departments contacted the DFS about the properties, which were not registered as required; and in August 2017, DFS issued notices to SN Servicing that the properties were not in compliance with the requirements of the law.
SN Servicing asserted that it was unable to maintain the properties, because the mortgagee would not authorize it. It subsequently claimed the properties were not subject to the requirements of the Act, because lien releases nullified its maintenance obligation. Nonetheless, under the consent order, in addition to the fine, SN Servicing must provide confirmation to DFS that:
• All properties subject to the requirements of the Act have been registered with the DFS registry of vacant and abandoned properties
• All properties are being maintained
• All quarterly filings have been made for each property
The servicer is also required to furnish the same confirmation to DFS on a bi-monthly basis, along with inspection reports and maintenance records.
The recent actions by DFS in enforcing provisions of the Act should serve as encouragement to municipalities throughout New York state that the Department takes to heart its responsibilities of enforcement and oversight, and will not hesitate to enforce them as appropriate. Likewise, mortgagees and their servicers are on notice that neglecting their statutory obligations in this area can come at their own great expense.
