Tool 4: Working with Lenders
Many cities, particularly those with high foreclosure rates, have found that a large number of their problem properties are properties in foreclosure or owned by banks (REO properties.) This is particularly true in judicial foreclosure states like New Jersey, Ohio or Florida, where the process from initial foreclosure filing to foreclosure sale and transfer of title to the lender can take two years or more. During that period, properties in foreclosure are often vacated by their owner or tenants, and once vacant, can be at severe risk of deterioration and potential abandonment.
It is in the interest of lenders and servicers to maintain the properties that they own or are likely to own in the near future, and many make reasonable efforts to do so. One major mortgage field services company, which maintains many thousands of properties throughout the United States, is Safeguard Properties, which maintains links with code enforcement personnel as well as CDCs in the cities where they work.
In many cases, however, lenders’ voluntary efforts are inadequate, and local governments have looked for ways to hold them accountable for the properties they control. The state of New Jersey passed a law which became effective in 2010 which makes the entity initiating the foreclosure legally responsible for maintaining the property in the event it is abandoned by its owner at any time after the initial foreclosure filing.
In some other states, including California and Florida, incorporated cities have enacted similar local ordinances relying on their police powers granted under the state’s home rule laws. The first city believed to have enacted a local ordinance holding lenders responsible for vacant properties in foreclosure was Chula Vista, California in 2007.
Getting information about who is responsible for properties is often difficult. The New Jersey law also requires that every lender notify the municipal clerk directly, with contact information for the entity initiating the foreclosure and for the entity responsible for maintaining the property. By enacting a vacant property registration ordinance, and making clear that it applies to lenders as well as titleholders, a city may be able to get that information more readily.
Some lenders may argue that they do not have legal authority to enter onto a property that they do not yet own. This is not correct. The standard mortgage used in the United States gives them clear authority to do so in order to protect the value of the asset.