New York Adopts Legislation to Address Vacant and Abandoned Foreclosures

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For far too long, vacant and abandoned foreclosed homes have been a serious problem for citizens and public officials in New York. According to a recent study,[1] vacant foreclosed homes number over 3,000 in the state of New York, trailing only New Jersey. One need not venture inside a property to see that it is vacant and abandoned – usually its status is quite evident to passersby. The telltale signs are overgrown grass and weeds, broken or boarded windows, sagging gutters and other signs of disrepair. Abandoned homes are not only eyesores for citizens, but pose safety hazards and drag down values of nearby homes. To top it off, the local municipalities are often stuck with maintaining these homes – cutting the grass to prevent rodent infestation, repairing the gutters to prevent flooding and sometimes demolishing homes that have become a serious safety concern. Often these costs are significant and are ultimately passed on to the taxpayers.

As one might suspect, the current law requires the homeowner to maintain his or her property. When that owner defaults on his or her mortgage, often due to financial distress, the owner does not have the means to maintain the property, thus resulting in the property maintenance issues mentioned above. Sometimes the owner(s) eventually abandon the property during the foreclosure process. Under the current law, since a lender does not become the owner of the property until the foreclosure process is completed (which can sometimes take years in New York), the maintenance responsibility continues to fall on the owner who no longer lives the property and has little incentive or ability to maintain it. Thus, the property continues to fall further into disrepair, often resulting in intervention by the local municipality at the ultimate cost of the local taxpayers.

New York recently enacted the “Abandoned Property Neighborhood Relief Act of 2016,” effective December 20, 2016, to address these issues. The provisions of the Act fall into three primary categories: 1) requiring lenders to inspect and maintain vacant property prior to completion of foreclosure, 2) the implementation of a statewide abandoned property registry and reporting system to monitor vacant properties, and 3) providing an expedited foreclosure process for vacant properties.

As mentioned above, currently, the responsibility to maintain a foreclosure falls to the lender only when after it comes into ownership of the property at the completion of the lengthy foreclosure process. Pursuant to the Act (with some limited exceptions), lenders will now have the duty to inspect and maintain abandoned and vacant properties prior to completion of the foreclosure proceedings. Specifically, within 90 days of delinquency, the lender must complete an exterior inspection of the home to determine whether it is vacant and must continue to inspect every 25 to 35 days.

If a home is determined to be vacant, the lender must secure and maintain the property, including: securing points of entry (i.e. doors, broken windows), winterizing the property, protecting against mold growth, and addressing code violations (such as overgrown grass and weeds). Should a lender fail to maintain the property, it will be subject to a $500.00 per day fine. Additionally, should a lender fail to maintain the property, a municipality may itself address maintenance and, per the Act, will have the right to commence an action directly against the lender to recover its costs. Pre-foreclosure recovery against the lender is generally not available today and will be a boon to municipalities that will now have a method by which to quickly and fully recoup their maintenance costs (as opposed to now, where a municipality’s costs are often billed to an owner who is nowhere to be found and ultimately levied on to a tax bill that the owner cannot pay).

The Act also calls for the implementation for a statewide electronic abandoned and vacant homes registry to be operated by the New York State Department of Financial Services (“DFS”). Within 21 business days of when a lender/servicer learns or “show have learned” that a property is vacant, the lender must cause the property to be entered into the statewide vacant property registry by providing the following information to DFS: 1) the name and contact information or the lender who will be required to maintain the property, 2) whether a foreclosure action has been filed and if so, when and 3) the last known contact information of the homeowner.

Though the Act provides that the information in the registry will be kept “confidential” (presumably to protect defaulting homeowners), it also provides that the information will be provided by the DFS to local municipal officials upon request so long as it is used strictly to address vacant and abandoned property in a manner consistent with the Act. Furthermore, the Act calls for the establishment of a hotline where neighbors and residents can report to the DFS regarding apparent vacant properties. If executed properly, the registry and the hotline could be a very valuable resource that could be leveraged by both NY State and local municipal officials to ensure lenders are timely and fully addressing maintenance responsibilities on vacant foreclosures.

In the legal and banking community that deals with foreclosures, New York is known for its notoriously slow and cumbersome foreclosure process – a process to which many attribute at least some blame for the vacant and abandoned properties crises. The Act seeks to address this problem by implementing an expedited foreclosure process for vacant and abandoned property. In sum, lenders may make use of an expedited legal process known as an “order to show cause” in order to quickly bring a foreclosure process to conclusion so long as the lender demonstrates that the property is indeed vacant. In order to do so, it must conduct 3 consecutive inspections of the subject property, at least 25 to 35 days apart, and show 1) no evidence of persons residing there, and 2) that the property was not being maintained in a manner consistent with requirements of the NY Property Maintenance Code.  Evidence of lack of occupancy may include: overgrown or dead vegetation, accumulation of mail, past due utility notices, accumulation of trash, absence of window coverings, broken windows, failure to secure entry points, and that the property is structurally unsound or otherwise hazardous.

In addition, New York is pursuing measures to prevent abandoned property in the first place, including the establishment of the “Community Restoration Fund” program whereby New York will be able to purchase defaulted mortgages and offer favorable mortgage modifications in order to keep owners in their homes.

Prior to the Act, municipalities sought to address vacant properties by adopting a patchwork of local legislation. Generally, the local legislation centers on requiring lenders to register with the local municipality and post a bond that can be accessed by the municipality to deal with maintenance on foreclosed properties. Municipalities should be aware that the Act provides that local legislation cannot be inconsistent with the Act. New York State’s intent appears to be that the Act will accomplish the purpose of the aforementioned local legislation by having DFS maintain a statewide registry (rather than local registries), by legally requiring lenders to maintain prior to foreclosure (and thus dispensing with the need for municipalities to step in) and by providing municipalities a direct path to recovery against lenders should they fail in their duties.

As effective date of Act approaches (Dec. 20, 2016), public officials should prepare to make use of the new tools they will have at their disposal.  From the ability to interface with DFS to identify vacant homes to the right to recover maintenance costs directly from the lender, the Act promises long overdue tools that appear likely to significantly and positively impact the abandoned and vacant homes crises in New York.

[1] http://www.housingwire.com/articles/37068-strong-housing-market-helps-reduce-lingering-foreclosure-inventory.

Practice Tips on Drafting Local Legislation for New York Municipalities

 

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As a municipal attorney I have had many opportunities to write, amend and analyze local legislation. Along the way, I have developed a mental checklist that I consider when working on such legislation. In this post I will reduce that mental checklist to writing in order to provide practice tips for drafting local legislation.

Local legislation includes local laws, ordinances and codes of municipalities such as counties, cities, towns and villages. Often, a municipality’s local legislation is referred to as that municipality’s “code.”  In fact, a municipal code, such as a “Town Code,” is merely an organized collection of select legislation that typically includes a variety of local laws and ordinances. A code book is created so that a municipality’s local legislation is retained in an organized and accessible manner (rather than filed away in various cabinets of a dark file room), so that it can be easily accessed and referred to by municipal staff and the public alike.

There are two general areas which should be considered when drafting local legislation – substance and procedure.

Substantive Considerations:

  1. Provide Intent.

Describe, in the local legislation itself, why the legislative body is adopting it. What is the background? What is the goal? What facts, studies or other items have been considered? Intent is important not only because it provides a context, but also because in some cases where local legislation is challenged in court, the “intent” section is used by courts to interpret otherwise ambiguous provisions.

  1. Clarity.

Obviously, we want our laws to be clear and understandable. Case law bears out innumerable examples where our federal and state legislators have fallen short here.  Below are a few tips that should help with clarity:

  1. Most importantly, where appropriate, use definitions for key terms. Capitalize those terms when they are used within the legislation to indicate they are defined.
  2. Avoid long, meandering sentences that are often difficult to follow and understand. Break them up into smaller sentences.
  3. Make an effort to divide content into meaningful categories and use distinct sections throughout the law.
  4. Make use of titles, both for sections and subsections.
  5. Ensure that the proposed legislation is properly formatted – used nested lists, spaces between sections, underline or bold titles, etc.
  6. Have another person, or a few different people, review your proposal prior to adoption. Sometimes what may be clear to you is not clear to everyone else. Remember, local legislation needs to be understandable not only to the people who draft it, but, most importantly, to the local residents who must ultimately understand and abide by it.

      3. Consistency – Local.

Proposed legislation should not only be internally consistent (meaning it doesn’t contradict itself), it also should be consistent with legislation already on the books. Check other areas of your municipal code book that may be related and ensure that the new legislation doesn’t unintentionally undercut or conflict with those areas. Also, make sure you pick a term and stick with it – don’t use different, interchangeable words to describe the same thing. This is why definitions are important.

  1. Consistency – State and Federal / Constitutionality.

Ensure that the proposed legislation does not impermissibly supersede or conflict with other state or federal law. For example, in New York, much litigation ensued over whether a local municipality had the authority to regulate zoning with respect to hydrofracking. The issue revolved around whether, and to what extent, New York State Law related to the activity prohibited local legislation on the topic. Be aware of state law on a topic and ensure it does not preempt your proposed legislation.

Be aware of Federal Laws on the topic that may preempt local legislation. For example, while local governments are permitted to adopt legislation related to the siting of cell towers, the Federal Telecommunications Act prohibits local legislation from addressing a number of topics, including, for example, how a cell tower may affect the health of those in its proximity.

Finally, ensure that the local legislation you adopt is constitutional. One particularly treacherous issue here is sign codes – they may not violate the First Amendment, meaning they may only regulate signs in a manner that is “content neutral.”

  1.  “Teeth.”

Make sure your proposed legislation has “teeth” – meaning that it has “bite” because it can be enforced. Create a distinct “Enforcement” section and set forth what constitutes a violation, what process must be carried out to address such a violation and detail the penalties for a violation.

Procedural Considerations:

  1. Legislative Authority.

Prior to putting pen to paper (or fingers to keyboard), the first task should be to ensure that the municipality has the authority to do whatever it is that it seeks to do. Municipalities are only permitted to do what they have been expressly empowered to do under the law – this doctrine is referred to as “legislative authority.” Find authority for whatever local legislation you are drafting. For example, in New York towns, such authority is often found in NY Town Law or NY Municipal Home Rule Law.

  1. Due Process – Notice and Public Hearing.

Often, the state law which provides legislative authority provides for due process, usually requiring a properly noticed public hearing at which members of the public may offer their input on the proposed legislation. Typically, the public hearing must be noticed in a local newspaper a specific number of days in advance.

  1. Input from Other Agencies.

In some cases, the proposed legislation must be referred to another agency for its review and input prior to approval. For example, pursuant to NY General Municipal Law Section 239-m, legislation dealing with land use in close proximity to other municipalities must be reviewed by the local County Planning Board prior to approval.

  1. Environmental Requirements.

Environmental review is often a pre-requisite to adoption of local legislation. It may seem odd to analyze the environmental effect of legislation since, initially, legislation only changes words on a page. But, consider, for example, local legislation which changes the zoning code of a Town so that it now permits landfills – this may ultimately result in an actual landfill with substantial environmental impacts. In New York, environmental review is conducted pursuant to the State Environmental Quality Review Act (SEQR).

  1.  Implementation.

The legislative board’s approval of the proposed legislation at open meeting is not the final step. Ensure that the local legislation is properly filed with the Town Clerk and the Secretary of State in New York. Finally, work with staff to ensure the legislation is properly incorporated into the local code book.