By NYS Assemblyman Michael P. Kearns
In today's Great Recession a concern keeps coming to the forefront in my district (New York 145th Assembly District) and many districts throughout the country, "Who is responsible for upkeep and maintenance of properties which the families have vacated and banks hold a lien on?"
Analysis starts with the relationship between lender and customer, both enter into a mortgage contract regarding the sale and purchase of a home or business. When the customer defaults on a home mortgage, both parties turn to the contract in search of rights, remedies, obligations and responsibilities. The mortgage contract often contains "abandonment and waste clauses that grants the lender authority to enter the property prior to foreclosure in order to secure and maintain the collateral, the home." (City of Boston Resolution, "Regulating the Maintenance of Vacant Foreclosing Residential Properties," February 27, 2008)
When the market is good and the property has significant value these clauses are routinely enforced. However, when the market hits a downturn or the property is run down, "some lenders argue that they are not responsible" and these provisions go unenforced. Perhaps a mandatory ownership designation clause in the event of default for all mortgage contracts would help clear up the banks status?
In New York when the property requires repairs under local housing and building code ordinances, it is in the banks best economic interests if "ownership" of the property remains ambiguous. Banks achieve this by relying on requirements of Real Property Actions and Proceedings Law § 1307 (Duty to maintain foreclosed property). The banks can assert that statutorily they aren't responsible because they haven't met the requirements of a "judgment of foreclosure and sale" and thus ownership. This effectively allows banks to shift responsibility for maintenance and upkeep of vacant properties onto a concerned municipality, neighborhood or homeowner's association. The statute allows banks to delay obtaining "ownership," if they obtain it at all. In short, the banks have the best of both the contractual and statutory worlds and may rely on either contract or statute to suit their economic interests.
How can this dilemma for municipalities, neighborhoods and homeowner's associations be solved? In Town of Huntington v. Lagone, 29 Misc 3d 779, 782 (Suffolk County, 2010) the court in interpreting RPAPL § 1307 refers the issue to the New York State Legislature as a policy matter and hints it may be remedied by changing the statute.
A solution may be as simple as including the words "in good faith" in the duty to maintain foreclosed property statute. In other words, if RPAPL § 1307 read, "A plaintiff [bank] in a mortgage foreclosure action who in good faith obtains a judgment of foreclosure and sale," the banks would be required to exercise good faith and not be allowed to delay obtaining a judgment of foreclosure and sale, but rather be forced to conclude the foreclosure sale and complete ownership status. The lack of good faith language effectively allows banks to argue that they are not a responsible party or owner of a vacant structure, when they delay taking action. There is no "bad faith" or breach of good faith for delays because the statute does not contain this language.
In an ideal world banks and lenders would exercise decent ethical business practices and conduct themselves responsibly and fairly in the communities in which they make their fortunes. Unfortunately, this is a pragmatic world and refining behavior requires statutory amendment, a mandatory mortgage clause indicating ownership upon default, as well as a statutory change that banks provide municipalities with contact information of a party responsible for maintenance.
For my part I will be sponsoring a bill to add "good faith" language to RPAPL 1307. I hope that the People of New York agree with the above assessment and lend their voice to this issue by contacting their local state officials so that changes are made for everyone's benefit.
Assemblyman Kearns' webpage.
This has been a long standing problem, especially in areas with lower real estate values. Here in Black Rock the banks have made no effort to maintain or even secure properties they foreclose on. This problem started with the aggressive marketing of home equity loans in the early 1990's. Many homeowners were given grossly inflated appraisals and encouraged to borrow the 70% allowable against their homes. The banks took their commissions and left the owners with a debt beyond the value of the home. Many of these homes were owned free and clear having been in the familiy for generations. This was the start of the vacancy problem and did much damage to our once very stable neighborhood.
That sounds like more of a problem with greedy owners and less of a problem with the banks. It's like blaming guns for killing people, instead of blaming the people using the guns.
I was a board member at Black Rock Riverside Neighborhood Housing Services for 12 years beginning in the early 1990's. The banks were very aggressive in pushing these home equity loans, they used high pressure sales calls and put door hangers on every house encouraging owners to take home equity loans. They used their own appraisers to inflate the value (and their commission) and advised the home owners the value would continue to increase so there was little risk. They took advantage of the elderly, the poor, and the stupid. The fraudulent appraisals were the centerpiece of this scam and eventually were challenged in court. The appraisers were found to be conspiring with the lenders and the practice was ended, this is the reason appraisals are now more accurate and valid.
the owners are certainly responsible for bad judgement but the banks are guilty of exploitation and fraud, a much larger crime in my opinion.
"They took advantage of the elderly, the poor, and the stupid."
I think that's called Social Darwinism?
I think that is called lack of integrity and lack of basic decency, which side are you on?
See, that comment is exactly why this site get's under my skin sometimes. Everything doesn't have to be, take a side, black and white, right and wrong, rich vs poor, city vs suburb. This site does more to make someone "take a side" than any site I've even been on. If you realized that by pushing an extremist agenda (on either side of the conversation) you push people to the opposite of what you believe more times than not. Maybe if everybody on here could learn to ligheten up a little bit, maybe, just maybe we could have a constructive converstation, instead of everything being right vs wrong, or city vs suburb.
and yet you seem to enjoy always 'taking a side'... and you also seem to be the one most needing to 'lighten up'. So maybe taking some of your own advice is in order here.
:)
My comments were constructive, informed, and reasonable. Now go back and read yours.
What a stupid statement.