DS News

54 During the DS News webinar, Dawn Adams, SVP, Default Servicing, Roundpoint Mortgage Servicing said, "Vacant properties lower not only the value of that property but the value of the properties surrounding it as well." Zombie properties tend to proliferate in states that feature a judicial foreclosure process, wherein the foreclosure proceedings have to make their way through the court system. Regulations in these states have sometimes extended the foreclosure process beyond 1,000 days, Sharga said. At the peak of the crisis, these foreclosures could sometimes drag on for as long as 1,300 days in states such as New York and New Jersey. e metropolitan areas with the most zombie foreclosures include New York- Newark-Jersey City, Philadelphia, Chicago, Miami, and Tampa-St. Petersburg. "In many of these cases, the borrower simply left before the foreclosure process was completed," Sharga said. During the webinar, Stephen Hladik, Partner, Hladik, Onorato & Federman, remarked, "My standard joke is that ' judicial' is a Latin term meaning 'really slow foreclosures." DEFINING THE ENEMY Abandonment of a property leaves lenders and servicers in dire straits, often with no clear right to maintain or enter the home and no right to reclaim the property until the foreclosure process finally reaches its end. Standing empty, these homes can fall into disrepair, becoming eyesores, creating safety hazards, and even attracting squatters—sometimes of the criminal variety. ankfully, the number of zombie properties has been dropping steadily over the years. According to data from ATTOM Data Solutions, over 14,000 properties in the foreclosure process were vacant as of the end of Q3 2017. at's down from a peak of 44,000 properties in Q3 2003, and those 14,000 homes represent 4.18 percent of all properties in foreclosure. Vacant REO properties also face some— although not all—of the same problems as abandoned zombie foreclosure homes. According to ATTOM data, there are over 24,000 vacant REO homes nationwide, representing 15.33 percent of REO inventory. ey tend to cluster in many of the same locales with zombie foreclosure problems—New York, New Jersey, Chicago, etc. In June 2017, the National Mortgage Servicing Association (NMSA) published a white paper entitled "Protecting Consumers and Communities: Proposal for Standardization of Key Definitions, Guidance, and Best Practices for the Preservation and Maintenance of Vacant & Abandoned Residential Properties." Among other things, it highlighted one of the primary problems zombie homes present to the industry—a lack of consistent definitions when it comes to determining what qualifies a property as "vacant" or "abandoned." (You can read the white paper on the NMSA website at NationalMortgageServicingAssociation.com.) Common-sense definitions won't necessarily pass muster here, as it's not about defining the terms for general purposes—it's about defining them from a legal standpoint. Statutes and regulations vary wildly when it comes to determining what constitutes a vacant property. "You wouldn't think it would be that complicated," Sharga said, "but our court system has made sure that it is." Many of the servicers, attorneys, and field servicers tasked to deal with these empty properties would be happy just to have a simple, uniform definition of what counts as vacant and abandoned. "From a legal standpoint, there are numerous issues as to how you quantify what counts as vacant and abandoned," Hladik said. As an example, Hladik cited vacation homes, which may only be physically occupied for a couple of months out of the year. at being said, they clearly are not abandoned even though they may spend a majority of their time standing empty. Some characteristics used to define vacant or abandoned properties in areas around the country do come down to common sense. Is the property boarded up? Is the grass overgrown, is trash accumulating, or are there other telltale signs that the property is not being maintained? However, other times municipalities have to look beyond the most obvious signs. Hladik explained that some city code enforcement officers will check to see if the utilities to the property are shut off, if mail is still being delivered, and even if copper wiring or other valuable materials have been stripped from the building. e accumulation of multiple municipal citations against a property is another common red flag, especially if they have not been remediated. Local codes allowing a property to be deemed "uninhabitable" can also prove useful when it comes to dealing with vacant and abandoned properties that may otherwise be mired in a foreclosure quagmire. But it can get even more complicated because even where definitions of 'vacant' and 'abandoned' exist, servicers may face a reality where contradictory definitions butt up against each other. As Dawn Adams told DS News, servicers typically deem a property abandoned once a borrower has notified the servicer of their intention to vacate and relinquish rights to the property. However, most "Vacant properties lower not only the value of that property but the value of the properties surrounding it as well." —Dawn Adams, SVP, Default Servicing, Roundpoint Mortgage Servicing

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