Regulators in the state of New York have submitted a proposal asking that processes for abandoned or vacant properties be streamlined.
Last week during a speech at the Mortgage Bankers Association conference, Benjamin Lawsky, superintendent of the Department of Financial Services, called for the state’s mortgage foreclosure process to be completely modified. This request was made because the state continues to struggle with the biggest backlog of delinquent homes loans in the country.
Changing Foreclosure Processes
In his speech, Lawsky stated that new measures need to be adopted by state legislatures whereby the timeline for processing foreclosures is shortened. In addition, he wants to see the process of foreclosures streamlined, specifically for homes that are abandoned or vacant. Along with residential, his proposal would cover some commercial properties.
During the first quarter of this year, over 5.5 percent of New York mortgages were in some state of foreclosure. Considering the national average is 2.2 percent, this shows that New York is well above the norm. However, New York, as well as several other states, has a long, drawn out foreclosure process that can take years to get through the court system.
Usually, the court process works well for people who fall behind on loans but for mortgage servicers, this can lead to additional expenses. There is also the risk to nearby property owners. For instance, many homeowners going through foreclosure leave, which allows the property to go into disrepair. Immediately, this has an ill-effect on home values within the surrounding area.
New York, as well as other judicial states, has experienced a slower ramp up of foreclosures during the latest financial crisis but for working through backlogs, it has taken much longer. As expressed by Lawsky, the ongoing foreclosure crisis is in part due to problems with how New York’s broken foreclosure process is being applied, with foreclosures taking more than 900 days on average.
New Rules for Borrowers
Lawsky wants lenders to be required to advise borrowers that until a foreclosure sale occurs, they are not required to leave the home. With that, fewer homes would become abandoned or vacant. According to Governor Andrew Cuomo, deals with 11 banks in New York, as well as credit unions and mortgage companies has been struck to maintain abandoned and vacant homes.
In a statement from David Stevens, president of the Mortgage Bankers Association, reducing timelines for the foreclosure process is a good idea. He agrees that it is important to protect the consumer while not creating delays or obstacles for homes that should go into foreclosure.
As far as a timeline for the proposals offered by Lawsky to go through the state’s legislature remains unknown. However, Lawsky did say that he does not believe the foreclosure problem will be addressed in full during the current session scheduled to conclude by late June.
Bills on the foreclosure issue have also been sponsored by New York Senator Jeff Klein who feels Lawsky’s proposals could be appealing to a broader legislature. He added by streamlining the process on foreclosures, a number of issues specific to distressed properties would be addressed but in addition, both the bank and borrower would benefit.