Laws to fast-track vacant home foreclosures slowly gain traction
Years after the worst of the housing crisis, states still dealing with high foreclosure activity are weighing laws to speed the process on vacant or abandoned properties.
Maryland Gov. Larry Hogan is expected to sign a bill soon that would fast-track the foreclosure process for abandoned or vacant properties. Under the law, a property would have to meet at least three of 11 criteria aimed at ensuring it is no longer occupied in order for it to be eligible for fast-tracking.
Fast-track laws vary, but are most common in judicial foreclosure states. Illinois, Indiana, Nevada, New Jersey and Oklahoma, as well as Michigan, a nonjudicial state, have fast-track laws on their books, according to a 2014 report by the National Consumer Law Center. New York and Ohio passed their own laws in 2016 and a fast-track bill was recently under consideration in Pennsylvania. In New Jersey, a new bill under consideration would make it easier for planned real estate development boards — like a condo association — to obtain a court order requiring servicers to use the state's existing fast-track process.
Nationwide, nearly 5% of all properties in the foreclosure process are vacant, according to Attom Data Solutions. But the rate of these so-called zombie foreclosures is much higher in states like Vermont (15.4%), Oregon (11.9%) and others.
Despite the fact that foreclosure activity has fallen below prerecession levels nationally, several states still have a foreclosure problem of one kind or another that is exacerbated by longer timelines.
The foreclosure rate in states like New Jersey and Maryland, for example, was more than twice that seen overall in the United States during the month of March, according to Attom Data Solutions.
For markets like New Jersey and Maryland, the foreclosure rate "is small percentage-wise, but relative to other markets, it is high," said Daren Blomquist, senior vice president at Attom Data Solutions.
There’s not much that servicers can do to fast-track foreclosures on properties where the borrower is still present, given that procedures involving distressed borrowers have been heavily regulated since the Great Recession. And consumers initially fought hard against fast-track foreclosure proposals due to concerns those bills would rush the process for borrowers.
"It's interesting because the pendulum has been swinging over the last couple of years away from giving [foreclosures] more time to fast-tracking," said Blomquist.
But today there is some consensus that fast tracking should be applied only to vacant properties, according to the Mortgage Bankers Association, which established a set of recommended principles for states to consider.
Typically, more recent bills or laws have been aimed at situations where "the borrower no longer wants to proceed with ownership," said Scott Nowak, the MBA's associate director of state government affairs.
Servicers usually prefer to keep a borrower in the property because that generally preserves its value, so it's unlikely the bill would encourage servicers to oust borrowers so foreclosures could proceed faster, said Robert Klein, the chairman of Safeguard Properties and nonprofit Community Blight Solutions.
But servicers generally find that vacant foreclosure properties in particular lose value the longer they sit unsold. And vacant units can spread blight, particularly in areas where the foreclosure rate is higher.
"A vacant property is not a bottle of wine, it doesn't get better with age," Klein said.
The Maryland bill could shorten foreclosure timelines for nonowner-occupied vacant properties to 90 days, in a best-case scenario, Klein said.
Even with the vacancy requirement, some bills have been problematic for consumers because the definition of abandonment was more about the condition of the property than occupancy, said Geoffry Walsh, a NCLC staff attorney and the author of its fast-track report.
"Our concern has been about the definition and what's the burden that's put on the homeowner to rebut that the property is abandoned," he said. He declined to comment on the Maryland bill specifically, pending further specific study of it.
The Maryland bill does include a procedure by which the last known resident of a property is notified in person that the property is entering foreclosure and given the information needed to appear in court to challenge the action.
"The homeowner has an opportunity to object at the court proceeding," said Brian Quinn, an attorney at law firm Venable LLP.