Momentum continues to build for the fast-tracking of the foreclosure process on vacant, abandoned properties. While this subject remains a bit controversial today, not acting pro-actively would be even more controversial.
Countless neighborhoods and whole communities have been negatively impacted over the past several years by blight and other consequences that accompany increased abandonment of residential real estate properties, especially in many urban areas. That is why a growing number of cities, states and other municipalities are taking steps to speed up the foreclosure process wherever it makes sense to do so.
The Bangor Daily News recently reported in a piece authored by Judy Harrison, a BDN staff writer, that a new law enacted by the Legislature and signed by Gov. Paul LePage, “…will improve the foreclosure process in Maine, Attorney General Janet T. Mills said.”
In her piece, Harrison noted that LD 1389, was drafted following a six-month assessment of the foreclosure process in Maine, two public forums, meetings with numerous bankers, housing counselors, attorneys and others. While the foreclosure rate has slowed in many parts of the country, Maine courts experienced an increase from 4,339 in 2012 to 4,756 in 2013. The new legislation reportedly will, among other things:
- Strengthen the role of mediation by incorporating the national mortgage settlement standards.
- Establish an expedited procedure to deal with abandoned properties.
- Shorten the challenge period from 15 years to five years for property subject to municipal tax liens recorded after October 2013.
- Authorize the Bureau of Consumer Credit Protection to regulate property preservation entities operating on behalf of lenders.
There exists a balancing act between protecting property rights of homeowners and the blight and associated costs related to health and safety issues and increased criminal activity often caused by vacant, abandoned properties that has given rise to the growing number of states looking at solutions to the problem.
But blight is not the only issue. According to an article published recently by Ohio.com, a report released by the Federal Reserve Bank of Cleveland indicated the acuteness of the foreclosure problem in Ohio and other states where the process is handled through the courts. The article stated, “As the study notes, the amount of time it takes to complete the [foreclosure] process—at least six months at its quickest in Ohio—adds significantly to the overall cost of foreclosures and slows the economic recovery.”
According to the study’s estimate, approximately 20% of the houses that have been foreclosed on in Ohio are vacant. It conjectured that if the judicial foreclosure process were to be fast-tracked on abandoned properties the state would reduce its inventory of foreclosed houses and substantially cut losses to the tune of tens of thousands of dollars.
One important provision of House Bill 223, currently under consideration in the Ohio House, defines the criteria for declaring a residential property to be vacant and abandoned, which then qualifies the house to be fast-tracked. Another significant provision would create a pilot program that would eliminate the minimum-bid requirement if the subject property does not sell at the first auction.
Ohio is one state among several that continues to suffer from a backlog of foreclosure cases in its court system. The aforementioned bill is looked upon as a promising bipartisan effort to accelerate their promising economic recovery.
Ohio’s action follows that of the Illinois General Assembly, which passed a bill late last year that reduces the timeline on the foreclosure process for abandoned properties from the more than two years it can often take today to as little as 90 to 100 days.
Lenders would also be required to pay additional fees to file foreclosure actions which will ostensibly be used to fund homeowner counseling and foreclosure prevention efforts, as well as help offset municipalities’ costs to secure and maintain neglected buildings. One of the main keys to the potential success of the Illinois bill would be the foreclosure courts’ ability to push the process through after the lender clearly demonstrates abandonment.
Other states are looking to follow New Jersey’s lead. Senate Bill 2156, signed into law by Gov. Chris Christie, is a piece of legislation that allows courts to grant summary foreclosure action when a subject property is certified vacant. As in other judicial foreclosure states, especially New York, moving abandoned properties through the foreclosure process is quite protracted. This new bill in New Jersey will require that lenders present in court “clear and convincing evidence” that the subject property is in fact vacant and abandoned. With that evidence accepted, the lender is allowed to fast-track the foreclosure process.
Similar legislation, instituted in Colorado and municipalities in Florida, is being watched closely for signs of success. Clearly, there is momentum building for fast-tracking the foreclosure process on vacant, abandoned properties. This is gaining in importance since there are numerous signs that the artificially created, “so-called” housing recovery has stalled noticeably.
Lynn Effinger is the executive vice president of business development for ZVN Properties Inc.