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Bill Would Turn Abandoned Homes Into Affordable Housing, But Will Christie Sign?

Advocates argue foreclosed properties are a drag on property values and an invitation to vandalism and crime.

With one of 10 houses in foreclosure in New Jersey, the legislature has once again voted to allow the state to buy up homes that have been abandoned and resell them as affordable or market-rate housing. The question is whether Gov. Chris Christie will sign the bill, having vetoed a similar statute earlier this year.

The legislation, which was adopted by the Assembly 43-32 earlier this week and previously by the state Senate, would mandate the state Home Mortgage Finance Agency to work with nonprofit and for-profit firms to buy foreclosed houses and sell them within two months. Properties could be sold at market rate, though most are expected to be turned into affordable housing. The bill was sponsored by Sen. Raymond Lesniak (D-Union) in the Senate and Assemblyman Jerry Green (D-Union) in the Assembly.

“The foreclosure problem keeps mounting,” Lesniak said Tuesday. “Unless there is some method to get these homes back on the market and occupied by families, they will continue to be a drag on the economy and damage property values where they exist.”

Christie signed a companion foreclosure bill Thursday, S-2156, which was designed to streamline the process when properties are abandoned.

The bill gives the courts the authority to issue a summary judgment in a foreclosure case when it is clear that a property has been abandoned and the foreclosure proceeding is not being challenged. The bill lists 13 specific criteria, requiring that at least two be met for a property to be deemed abandoned.

The bill, sponsored by Lesniak in the Senate and Anthony Bucco (R-Morris) in the Assembly, was approved 35-2 in the Senate and 79-0 in the Assembly.

“When there is clear evidence and no dispute that a residence is abandoned, we can eliminate bureaucracy and allow the lawful owner to improve a property and remove an eyesore in the community without legal delay,” Bucco said in a release on Thursday. “This law preserves protections to make sure a property is abandoned without wasting unreasonable time in court.”

Headed for the Governor's Desk

According to the Lesniak-Green bill, mortgage foreclosure filings “grew from just over 20,000 in 2005 to more than 51,000 in 2008, 66,000 in 2009, and 58,000 in 2010,” with one in 10 New Jersey homeowners in foreclosure or more than 90 days behind.

The bill is backed by a surprising coalition, which includes housing advocates like the Housing and Community Development Network of New Jersey; groups representing builders, banks, and mortgage companies; and the state League of Municipalities. They say the bill would help protect neighborhoods and encourage construction of affordable housing.

It is opposed by the conservative Americans for Prosperity, a state Tea Party group run by former gubernatorial candidate Steve Lonegan that was the only group to testify against the bill.

The legislation now goes to the governor, who has until January 17 to act. Sean Conner, spokesman for the governor, said the governor had “nothing to add at this time.”

The governor vetoed an earlier version of the bill in June. That measure would have created a separate corporation to manage the program. Before that bill was approved by the Legislature, Christie had said he opposed the separate agency.

In his veto statement, which covered the “foreclosure transformation” bills -- one that streamlined the foreclosure process on abandoned properties and one that extended the deadline for spending money in municipal trust funds -- the governor said the bills “would ladle on even more government spending” and were “little more than a thinly veiled attempt to circumvent the tough choices required to meet the constitutional obligation of passing a balanced budget.”

Lesniak disputed the governor’s claims that the bills would add $275 million in government spending; rather, he said, there would be no cost to the state because the HMFA would be acting as a bank to finance purchases.

Banking on a Trust Fund

The program would be funded by municipal housing trust funds, which collect fees from developers for affordable housing projects, along with money from the state Affordable Housing Trust Fund, which is generated through a fee on real estate transfers.

The HMFA -- which funds mortgages for first-time homebuyers, and construction of rental housing and housing rehabilitation projects throughout the state -- would use its bonding authority to borrow money against the trust funds. Towns that opted into the program and used their affordable trust funds to deed-restrict properties would get bonus credits against their affordable housing obligations.

“The HMFA can sell bonds to private investors and then would be able to bundle an inventory of foreclosed homes and buy them at a discount,” Lesniak said. “Then they could put them back on the market at the market rate or a municipality could use its affordable housing trust fund to buy them and make them deed-restricted homes to satisfy their Mount Laurel requirements.”

Those requirements were created by a pair of state Supreme Court decisions in 1975 and 1983, which ruled that towns had to provide for a fair share of affordable housing within their borders. The Council on Affordable Housing was created two years later as part of the Fair Housing Act, which codified the 1983 ruling.

The requirements are now in limbo as the state Supreme Court once again considers several challenges to separate changes proposed by the Council on Affordable Housing and the Christie administration. COAH round-three rules, created in 2004, gave towns the ability to calculate their own obligation based on a growth-share formula, tying the number of unites need to future growth. COAH previously calculated the figure itself and handed down a quota to towns.

The court is expected to rule in the spring on the latest set of challenges, which have pitted housing advocates and home builders against municipal officials.

Vandalism and Crime

Advocates say Lesniak's legislation will protect neighborhoods and expand the pool of affordable housing in the state. They say that abandoned properties and foreclosed homes are a drag on property values and the housing market, and create potential for vandalism and crime.

The AFP, on its website, called the foreclosure bill a “scheme to bail out institutional lenders and turn foreclosed homes into ‘low-income affordable housing units’ at taxpayer expense.” It previously said the legislation would “permit people with so-called ‘special needs’ to be placed in the foreclosed properties, including drug addicts, sex offenders, juvenile delinquents, homeless people, and others.”

Bill supporters said the legislation was a “win-win” for the state. Michael Cerra, senior legislative analyst for the League of Municipalities, said the local governments were supportive because it creates an “opportunity for towns to have an impact on foreclosures” and to limit the damaging impact vacant properties can have on their neighborhoods.

Further, if towns opt to use their affordable housing trust funds to buy properties and deed-restrict them for low- and moderate-income residents, each unit will count twice toward the municipality’s housing obligation.

“Vacant properties in foreclosure run the risk of being a drag on property values in the neighborhood or for the town, and they can require additional services and cost towns tax revenue,” Cerra said.

Arnold Cohen, policy coordinator for the Housing and Community Development Network of New Jersey, said the legislation would protect neighborhoods and expand the store of affordable housing in the state.

“We see it as a vehicle to get homes that are sitting vacant, to get people living in them and to restore neighborhoods,” he said Tuesday. “If you have one vacant home on a block, it brings down the value of every home on the block, creating a health and safety hazard.”

Lesniak agreed.

“It’s a win-win because it helps the municipality satisfy their constitutional obligation and provide more affordable homes for low-income moderate-income families,” he said.

“And, quite frankly, it is a way to break through the log-jam of resistance toward moving forward on affordable housing programs because, no matter what the Supreme Court ultimately says, there will still be an obligation. This is a good way to meet that obligation and improve neighborhoods. Vacant properties are just an invitation to crime and they are eyesores.”

While the state’s urban areas are not subject to COAH rules, cities like Newark and Trenton still should benefit from the program because it will help turn abandoned properties into occupied housing, Lesniak said.

Cohen said that the lower cost of foreclosed properties in cities like Newark and Trenton should result in lower resale prices, meaning that they will remain affordable for buyers. In addition, he said, there is a state affordable housing fund and the potential for federal housing money that could allow nonprofit groups to “come in, purchase homes, rehabilitate them and make them affordable.”

That, said Cohen, would be good news for citizens of Newark, Trenton and other cities.

“It doesn’t help anybody to have vacant homes in a neighborhood,” he said. “And this is without state money. This is the private market doing what the private market does best.”

Hank Kalet is a veteran journalist and editor, who has covered economic issues, government, and entertainment in central New Jersey for more than two decades.

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