E‘Zombie’ foreclosures threaten home values, neighborhoods
AST ORANGE, NJ – (RealEstateRama) — U.S. Senator Bob Menendez today unveiled federal legislation that takes aim at zombie homes that plague New Jersey communities and drive down property values. New Jersey had the highest foreclosure rate in the nation in 2015 with over 35,000 filings and a recent report found the state has the most vacant zombie foreclosures in the nation with over 4,000.
“Zombie foreclosures threaten our communities and scare away new homebuyers and investors, which leads to neighborhood blight and plummeting values of surrounding properties,” said Sen. Menendez, Ranking Member of the Senate’s Subcommittee on Housing, Transportation, and Community Development. “We need to do all we can to keep families in their homes and ensure mortgage lenders are invested in the communities they serve. This legislation stands up for New Jersey’s struggling homeowners, and prevents the banks from turning their backs on borrowers, on their neighbors, and on the community at large.”
A zombie foreclosure occurs when a mortgage servicer files for foreclosure, the distressed homeowner moves out, and then the mortgage servicer walks away from the property without completing the foreclosure. And with no notice to the homeowner or the town or city in which the property is located, the mortgage servicer leaves the abandoned property in legal limbo and the homeowner and the community on the hook for taxes and fees.
Specifically, Sen. Menendez’s Preventing Abandoned Foreclosures and Preserving Communities Act of 2016:
Requires mortgage servicers to tell borrowers at the beginning of the foreclosure process they can remain in the home until state law requires them to leave.
Requires the servicer to make clear to the borrower he or she remains responsible for the payment of any taxes, assessments, and other fees during the foreclosure process.
Requires the mortgage servicer to make prompt notifications to both the borrower and the municipality where the property is located when it walks away from the foreclosure.
Prohibits mortgage servicers on loans backed by Fannie Mae and Freddie Mac and insured by the Federal Housing Administration (FHA) from walking away from an initiated foreclosure unless the servicer releases the lien on the property and provides proper notice to the borrower and municipality.
Requires the Government Accountability Office (GAO) and the Consumer Financial Protection Board (CFPB) to study and report on the prevalence and impact of abandoned foreclosures.
Sen. Menendez was joined by housing advocates and local officials outside a zombie home in East Orange to announce the legislation. East Orange has taken aggressive action within its municipal authority to tackle the blight of zombie homes and abandoned properties harming communities.
“Our neighbors and neighborhoods are still trying to recover from the foreclosure crisis and the outbreak of zombie foreclosures that have menaced our communities,” said Staci Berger, president and chief executive officer of the Housing and Community Development Network of New Jersey. “Zombie properties are a drag on our economy and a danger to our neighborhoods. We applaud Senator Menendez for his leadership on this issue by introducing policies that would help our communities fight back.”
“I commend Sen. Menendez for introducing this bill addressing one of New Jersey’s biggest foreclosure-related problems — so-called zombie foreclosures, or vacant properties stuck somewhere in the foreclosure process,” said Seton Hall University School of Law Professor Linda Fisher. “New Jersey retains the dubious distinction of having the highest number of zombie foreclosures in the nation — estimated at over 4,000. This is partly the result of lenders having little incentive to complete foreclosures when property values are low. This bill, however, puts the onus on lenders to notify homeowners of their rights and obligations and to notify towns of the status of the home. When homeowners know who’s responsible, they can actually be responsive, preventing homes from disrepair and borrowers from surprise charges on a home they thought they no longer even owned.”
In January, Sen. Menendez hosted a roundtable discussion in his Newark office with representatives from organizations including the Housing and Community Development Network of New Jersey, the New Jersey Bankers Association and the New Jersey Realtors to develop solutions for dealing with the state’s foreclosure crisis.
Last year, he led a letter to the federal housing and banking regulations, including Department of Housing and Urban Development Secretary Julian Castro and Federal Reserve Chair Janet Yellen about the zombie foreclosure situation in New Jersey and introduced the Preserving American Homeownership Act, that would provide relief to underwater homeowners by creating a program in which banks could reduce the mortgage principal for eligible homeowners and in exchange be entitled to a portion of any increase in the value of the home down the road.
Tricia_Enright (at) menendez.senate (dot) gov