This blog will be a two part series examining recent legislative developments in New York regarding foreclosures and mortgage holders.
Since 2008, a host of mortgage related laws and regulations have been passed in reaction to the mortgage crisis of the mid to late 2000's. In Nassau County, New York, The Town of Hempstead recently passed Town Code Chapter 128, Subsection 128-61-1, “In Relation to Foreclosures, Undertakings and Maintenance of Premises.” This law requires that a mortgage holder deposit $25,000.00 with the Town in every foreclosure action of an abandoned parcel. It is understandable what the town is trying to accomplish. Vacant homes are a nuisance to neighborhoods, can become prone to attacks of vandalism and can become an eyesore in the community. The town code mandates that a foreclosing party shall deposit a $25,000.00 undertaking with the town within 45 days of the filing of a foreclosure action against a residential property that has become vacant. However, it is important to remember that the mortgage holder does not own the property, they simply have a lien on the property. Most mortgage holders are not, or do not intend to be, in the business of maintaining real estate properties. That is certainly not contemplated when entering into an agreement with a borrower. So what could possibly go wrong? Well as a preliminary matter, the Hempstead Town Code does not define “vacant.” When is a property determined to be vacant? Is it when the furniture is removed from the premises? What if only some furniture is removed but not all, does that mean the occupants intend to come back? Is this a vacation home? It will not be easy to determine when the $25,000.00 undertaking will be required. Next, the definition of a foreclosing party includes “any person.” This will have to put residential real estate practitioners on notice. Say for example, a property owner in order to close a sale on their property needs to execute a purchase money mortgage to get the deal done. In the event of a default on the purchase money mortgage, it is highly unlikely this individual homeowner(s) will have $25,000.00 should the need arise to commence foreclosure proceedings and the prior owners have abandoned the property. Therefore, transactional real estate practitioners in Nassau and Suffolk County will likely have to advise their clients living in the Town of Hempstead not to take back a purchase money mortgage when selling a home, or risk having to ante up $25,000.00 in the event of a default on the mortgage. It will be fascinating to see this law in practice, and the effects, either chilling or otherwise, it could have on the real estate industry in Nassau County.