Due to the housing crisis of the past 5 years, efforts have been made to give homeowners every conceivable chance to avoid the foreclosures of their properties, so that they are not forced out of their homes. While well-intentioned, some of these provisions have resulted in unintended consequences. One such impact has been the rise of “zombie foreclosures.”
The zombie foreclosure occurs when a homeowner is faced with a foreclosure and then moves out of the property during the foreclosure process. Because foreclosures in New York now take so long to complete, the abandoned property may remain vacant for months or even years. During this time, it becomes a blight on the neighborhood it is located in, prompting outrage from neighbors concerned about its detrimental effect on a town’s property values.
This happens more than ever before due to the many new procedural requirements that have been added to the foreclosure process and the congested court calendars that have resulted from the exponential increase of residential foreclosures during the past several years.
To combat these zombie foreclosures, the New York State Legislature amended RPAPL 1304, to require a new disclosure that the Borrower may continue to occupy their home until they receive a court order directing them to vacate. They also enacted RPAPL 1309, which provides for an expedited Judgment of Foreclosure. The “traditional” New York foreclosure process requires Plaintiff to submit an Order Appointing a Referee to the court, and then a Referee’s Oath and Report to the Referee appointed, prior to submitting its Judgment of Foreclosure. The new RPAPL 1309, however, allows Plaintiff to skip these steps and immediately submit its Judgment of Foreclosure, provided Plaintiff establishes by affidavit, photos and other evidence that the property is, indeed, vacant and abandoned.
In order to avail themselves of these new procedures, lenders should regularly inspect properties securing delinquent loans every 25-35 days to identify any that are, in fact, vacant and duly register the vacant and abandoned property with the New York State Department of Financial Services, as required by statute.
Additionally, Lenders should solicit Deeds in Lieu of Foreclosure from delinquent homeowners, in exchange for a release from their liabilities, REGARDLESS OF THE EXISTENCE OF SUBORDINATE LIENS! By accepting a Deed in Lieu of Foreclosure, Lenders can avoid the "zombie foreclosure," begin to make any needed repairs, and market the property while the foreclosure is completed.
Finally, Lenders should continuously communicate with defaulting homeowners to evaluate if their circumstances have changed for the better or worse and to determine if a loss mitigation opportunity has been created before they decide to simply move out.
Although the New York foreclosure process will inevitably take too long, sometimes, as shown above, there are ways to shorten it.
Are you doing everything you can?