Banks, lenders agree to better maintain abandoned 'zombie house' properties in New York

Nearly a dozen major banks and mortgage lenders have agreed to maintain thousands of abandoned houses in foreclosure in New York -- a move that could bring relief to residents across Long Island who live near the dilapidated homes and the municipalities paying for their cleanup.

The agreement, to be announced Monday by Gov. Andrew M. Cuomo, for the first time gives state authorities the ability to oversee banks' efforts to maintain vacant properties.

It comes less than two months after Newsday and News 12 Long Island reported that Long Island leads the state and ranks in the top 10 counties in the nation for the number of "zombie" houses -- those in the foreclosure process and abandoned by their owners. Newsday's yearlong analysis found that local municipalities last year spent more than $3.2 million to maintain vacant homes and that the zombie houses have cost Long Island at least $295 million in depreciated home values.

Maintenance to improve

Cuomo and the state Department of Financial Services reached a deal with 11 banks, mortgage companies and credit unions that hold interest in 70 percent of New York's mortgage market. Under the deal the companies -- including Wells Fargo and Bank of America -- have agreed to adopt a set of "best practices" to maintain homes during the foreclosure process, which in New York averages nearly three years, the fourth longest in the country.

The agreement includes timetables, yet to be detailed, under which the companies are to conduct exterior inspections of homes, determine those that are vacant, and take steps such as changing locks, replacing or boarding up windows, eliminating other safety hazards and posting contact information at the property, according to a news release from DFS.

The pact also establishes a statewide registry of abandoned houses, to be shared with local officials. DFS officials said they will review complaints about vacant homes from residents and local officials, and ask financial institutions to correct problems. The provisions are expected to go into effect in August.

"Zombie properties can bring down the economic health and safety of entire neighborhoods," Cuomo said in the release. "This action . . . should serve as a model for protecting neighborhoods from the dangers of vacant and abandoned properties in the future."

Word of the deal drew expressions of relief from municipal leaders and residents.

Brookhaven Supervisor Edward P. Romaine, whose town has an estimated 2,000 vacant homes, said the deal has "tremendous potential" to relieve municipalities of having to board up and demolish zombie houses. "The Town of Brookhaven stands ready to work with the banks," he said. "I hope it [the agreement] works."

Hempstead Town Supervisor Kate Murray said she was "extremely grateful" for the deal and called it "a very important step toward improving zombie properties that are currently not being maintained."

The agreement mirrors many of the provisions of state legislation recently proposed by Attorney General Eric T. Schneiderman.

That legislation, which is being considered in the Assembly and Senate, would force banks to maintain homes when they become vacant and impose fines of $1,000 per day for each instance of failing to register a property or failing to maintain it. The money would be directed to a fund for local governments to hire additional code enforcement officers. The DFS agreement does not impose penalties on banks that fail to maintain houses.

Towns welcome deal

Schneiderman said in a statement that he will continue to seek passage of the bill that would "codify today's reforms into law, provide meaningful enforcement, and give municipalities the resources to take back their streets." He called Cuomo's deal a "welcome step forward in our fight to stop the epidemic of vacant zombie homes."

Babylon Town Supervisor Rich Schaffer said that financial institutions are more likely to be responsive to the state than to local governments, which can only place the costs of maintenance work on property tax bills.

"When the banks hear that agency [DFS] is involved, that's really the only thing that gets them to shudder," Shaffer said. "Locally we'll still have our punishments . . . and now we will be able to use the Department of Financial Services as an additional hammer."

Bank industry officials said they hire property management firms to maintain vacant houses during foreclosures and that the agreement reflects many steps they already undertake.

"These best practices are an important step toward addressing issues associated with vacant and abandoned properties in communities across New York State and are consistent with our long-standing approach to property preservation," Jim Hines, Wells Fargo assistant vice president for consumer lending communications, said in a statement.

Jumana Bauwens, a spokeswoman for Bank of America, in a statement cited the lengthy judicial foreclosure process in New York as having "contributed to the number of vacant properties in the state," but added that the agreement "is another example of the bank's commitment to address this issue."

Bruce Bergman, a Garden City-based attorney who represents banks, said if the new standards make it more expensive for lenders to make home loans in New York, it could increase costs for consumers. If banks are compelled to take on "care, custody and control" of vacant and abandoned homes, they could be sued if someone breaks in and gets injured, he said. The agreement does not absolve banks of legal liability for accidents.

"To the extent that banks could be sued with greater frequency and to the extent that the judgments could be in the hundreds of thousands or millions of dollars, it could make getting loans more difficult or it could raise the interest rates on future loans to compensate for the expense," Bergman said.

But residents with decaying homes in their neighborhoods hailed news of the deal.

"That's amazingly hopeful," said Pamela Ubl of Bay Shore, who has lived near an abandoned home for more than a decade. Ubl said she remains "skeptical of political pronouncements" but would welcome improvements.

Levittown resident Karen Newman, who has documented dozens of zombie properties in her community on a Facebook page, called the agreement between the state and the banks "fantastic" news.

"To hear that the banks are going to be stepping up a little more . . . is really good news for everyone," Newman said.

With Maura McDermott