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Final "Zombie Properties" Regulations Take Effect in New York
Practical Law Legal Update w-005-0808 (Approx. 4 pages)
Final "Zombie Properties" Regulations Take Effect in New York
by Practical Law Real Estate
| Published on 06 Jan 2017 • New York, USA (National/Federal) |
On December 20, 2016, final regulations promulgated by the New York State Department of Financial Services (DFS) went into effect requiring banks and mortgage servicers to report and maintain vacant or abandoned zombie properties.
Final regulations requiring banks and their mortgage servicers to report and maintain "zombie properties" went into effect on December 20, 2016 (3 NYCRR 422). The New York State Department of Financial Services (DFS) promulgated these regulations as part of a larger legislative effort to protect New York neighborhoods from the blight of homes that are vacated or abandoned by homeowners in the process of foreclosure.
Under these regulations, certain banks and mortgage servicers must:
- Inspect properties to determine if the homeowner has abandoned the property. Inspections should be made:
- within 90 days of a delinquency; and
- every 25-35 days thereafter.
- Secure and maintain the property where the bank or servicer has a reasonable basis to believe that the property is vacant and abandoned.
- Report all vacant and abandoned properties to the DFS and submit quarterly reports detailing their efforts to secure and maintain the properties and the status of any foreclosure proceedings.
The DFS will hold banks or mortgage servicers accountable for properties that are deemed vacant and abandoned and are not being properly maintained. The DFS is to set up a hotline allowing neighbors to complain about unmaintained properties. Violations include a civil penalty of $500 per day per property.
These regulations follow the recent amendments to the New York Real Property Actions and Proceedings Law (NY RPAPL), including the addition of new Sections 1308, 1309, and 1310 (NY RPAPL § 1308, 1309, 1310). This legislation:
- Places a duty to maintain zombie properties on the servicer of a mortgage who has the first lien on one-to-four family residential properties.
- Creates timetables for mortgage servicers to make a determination whether a property is vacant and abandoned.
- Provides a list of maintenance obligations and requirements including:
- securing, replacing, or boarding up broken doors and windows; and
- winterizing plumbing and heating systems.
These changes to the NY RPAPL also seek to avoid abandonment of foreclosed properties by:
- Clarifying the rights of homeowners to stay in their homes during the foreclosure process.
- Giving homeowners additional rights to negotiate with their lender during foreclosure.
For more information on the changes to the RPAPL, see Legal Update, New York Enacts Law Affecting Mandatory Foreclosure Settlement Conferences.
The final regulations contain several changes from the proposed versions, including changes to:
- Scope. The proposed regulations included buildings or structures used for residential or commercial purposes. The final regulations only cover residential properties.
- Compliance with Federal Law. A mortgage servicer’s compliance with the property preservation requirements of Fanny Mae or Freddie Mac (as they existed on December 20, 2016) are deemed to be compliant with Section 1308 of the RPAPL. If those property preservation requirements change after December 20, 2016, compliance will satisfy the New York requirements in the RPAPL only if they impose the same or greater requirements as compared to the requirements included in the guidelines in effect on December 20, 2016.
- Definition of Due Diligence. The final regulations include a requirement that mortgagees exhibit due diligence when determining whether a property is vacant and abandoned, due diligence is defined to include "ensuring that all timelines and requirements set forth in the law and regulation are adhered to and exercising oversight of third parties hired to inspect and investigate."
Banks and mortgage servicers in New York must schedule inspections of properties with delinquent mortgage payments in compliance with these new regulations and the RPAPL, and take sufficient measures to maintain these properties during foreclosure actions.