Fighting Community Blight: Two Steps Forward, Two Steps Back
In the multi-front fight against blight in communities from coast to coast, encouraging signs of progress keep getting offset by steps backward. Recent developments in three states, in particular, display the full range of the spectrum in this fight.
On a positive note, a new fast-track foreclosure law in Ohio gives lenders the opportunity to foreclose and market a vacant and abandoned property while it is in somewhat good condition. New York, too, recently created an option for an expedited foreclosure process on bona fide vacant and abandoned properties that homeowners no longer want; unfortunately, the same law places a new burden on banks and servicers. Meanwhile, a disturbing court ruling in Washington state handcuffs those seeking to protect defaulted properties prior to foreclosure.
Antiquated foreclosure requirements in many states have allowed vacant and abandoned properties to sit empty for years. Ohio’s new law, which went into effect in late September, offers a model for other states to follow. It establishes a fast-track process for mortgage foreclosures on vacant and abandoned properties and includes a strict verification process to ensure that no one is forced from their home. As a result, the foreclosure process will now take as little as six months in certain situations. Just as importantly, the mortgage servicer can often take possession and be proactive in protecting the property so it doesn’t deteriorate to the point that it can’t be saved.
But it’s exactly this kind of pre-emptive protection that is now at risk in Washington state and could be in peril across the country.
In a ruling that could have far-reaching repercussions, the Supreme Court of Washington determined last July that state law prohibits lenders from taking possession of a property prior to foreclosure, despite any language to the contrary in the mortgage documents. Thus, changing the locks or otherwise securing an abandoned property is no longer permitted before foreclosure — even if the foreclosure process drags on for months or even years and the steadily deteriorating property becomes a target for vandals or squatters.
The ruling, which the mortgage holder in the case has asked the court to reconsider, applies only to properties in Washington state. Nevertheless, it sets a dangerous precedent that should send shivers up the spines of everyone who committed to fighting blight in communities across the country.
Following the Washington state court ruling, a federal class-action case will now move forward on behalf of some 3,600 borrowers in the state. The ruling and that class-action case could well embolden consumer activists to raise similar challenges in other states where standard language in mortgage documents could also be interpreted as being in conflict with state law.
Such challenges could pose a particular dilemma for banks and servicers in New York, where a new law imposes a pre-foreclosure duty on them to maintain vacant and abandoned properties. Aimed at preventing “zombie” properties and the spread of community blight, the law places the maintenance obligation — enforceable by a $500-per-day penalty — on a mortgagee when it becomes or should have become aware of the vacancy.
Meanwhile, the purse strings remain unnecessarily tight on the federal Hardest Hit Fund, which provides significant resources to 18 states and the District of Columbia and targets critical resources toward programs that help Americans avoid foreclosure and stabilize housing markets. Funds may be used for foreclosure avoidance programs and for demolition but, ironically, not explicitly to maintain vacant and abandoned properties. A House Committee Report containing language clarifying that it would be beneficial to do so remains bogged down in the government appropriations process for fiscal year 2017.
The idea behind fighting community blight isn’t to kick people out of their homes; rather, it is to prevent blight from spreading by securing — and, as a last resort, removing — vacant and abandoned homes. Those with an interest in preventing the spread of community blight —municipalities, lenders, mortgage servicers, community groups, and others — should unite to prevent further setbacks in these efforts.
Robert Klein is founder and chairman of Community Blight Solutions, which is focused on understanding, solving and eliminating the problems of communities experiencing blight.