Municipalities trying to cope with houses left vacant and derelict in the wake of the Great Recession have a new tool for code enforcement — but it will be up to them to use it.
The new law requires foreclosing creditors to maintain properties or face stiff fines. Banks and other investors also would have to identify an in-state contact to oversee their properties and respond to questions.
The measure was prompted by concerns from local officials in communities where foreclosures have left abandoned and often deteriorating buildings, said state Sen. Ron Rice, a principal sponsor of Senate Bill S1229.
“This is a long-time thing we’ve been trying to get through” with the support of local officials, Rice said. “It’s been a problem throughout the state, particularly with foreclosed properties. A lot of them are out-of-state banks, and they don’t take care of the properties.”
While Gov. Chris Christie has seldom seen eye to eye with Democratic legislators on measures intended to combat foreclosure, this time he agreed on the need to help towns clean up the aftereffects.
“We’re thrilled that the governor signed this bill,” said Nina Arce of the Housing and Community Development Network of New Jersey. Preventing abandoned properties from bringing blight to neighborhoods has been “a major issue for us,” she said. At a conference two years ago, officials from Bridgeton to Jersey City lined up behind the idea, she added.
While a patchwork of local ordinances throughout the state attempt to require property maintenance, “municipalities need to have some teeth,” said Mike Darcy, assistant executive director of the New Jersey League of Municipalities.
The new law includes fines of up to $1,500 a day for violations by instate creditors and $2,500 for those out of state, who can often be hard to reach, he said. Just as significantly, Darcy said, it allows fines to be attached to the property, whatever hands it may have passed through since the original mortgage was issued.
In banking’s new world, making a mortgage loan is not an end in itself, just the first link in a chain of investment. Whether a mortgage was a sound deal or not, it can be sliced, diced, blended with others and spread among risky securities sold to unwary investors.
Many of these transactions have occurred in a private system established by major banks, the Mortgage Electronic Registration System, rather than being recorded in the county courthouse. The combination of fragmentation and lack of transparency has resulted in court cases in which lenders try to foreclosure on properties without having clear title.
In the meantime, the freewheeling market fueled a housing bubble in the early years of this century, even in New Jersey, where home prices already were higher than in most of the country. Eventually the bubble burst. In New Jersey, housing values peaked in late 2006.
Not coincidentally, 71 percent of Garden State homes now in foreclosure were purchased from 2004 through 2008, according to Daren Blomquist, vice president of the real-estate analytics firm RealtyTrac.
But even when lenders promptly sell foreclosed properties to investors, the houses often sit empty. New Jersey’s housing prices are still 20.6 percent below the pre-recession peak, worse than all but four other states, and sales remain sluggish, making investors skittish about putting more properties on the market.
Hurricane Sandy added another element to the housing market. Many homes have been rebuilt or demolished, but some remain in limbo almost two years after the storm. That is the case for a one-story home with white siding on Princeton Avenue in Brick Township.
The owner, Patrick Quigley, a one-time priest who died in 2010 without a will or surviving family members. The house was still sitting empty two years later when the storm sent five to six feet of water through it, according to neighbor Maryann Malta.
The interior has not been repaired since, Malta said. Overgrown shrubs and a fraying tarp covering about half the back roof, also damaged in the storm, suggest the house remains friendless.
“I have been in contact with our town, the county health department, the bank, and the property management company all on numerous occasions and everyone just points the finger at each other to come to a resolution on what to do with this property,” Malta said.
At times, investors have purchased tax liens on the property from the township, but Bank of America, which held Quigley’s mortgage, has redeemed them. In the past two quarters, local records show CoreLogic Tax Services of Irvine, CA, made the tax payments. A spokeswoman said the company merely provides escrow services for major banks. She declined to identify the bank in this case, although acknowledging Bank of America is “a pretty big customer.”
Linda Fisher, a Seton Hall University law professor, said that if Bank of America has not initiated foreclosure proceedings, it is unclear whether the neighbors can turn to the state law. But municipalities can take steps against derelict properties on public health and safety grounds, she said.
Fisher knows the problem first-hand. She and others on her block in Montclair have been contending with a home abandoned after Wells Fargo filed for foreclosure in 2011. Since then, the home has been stripped of copper pipes and occupied by squatters, she said.
“Here in this upper-middle class community, we have the same problems with poor property maintenance by loan servicers as I see in working-class urban communities,” said Fisher, who has been charting the effects of foreclosed properties on Newark neighborhoods.
After “stern” complaints from Fisher and her neighbors, the township finally expelled the squatters, she said. But restoration of the property may wait for resolution of the foreclosure case, with a short sale now rumored as the solution, she said.
Applying the new law to such situations is “all optional, it’s up to the municipalities,” Arce said. But she added that communities like Jackson Township already have toughened local ordinances in preparation for greater enforcement. Trenton’s Neighborhood Restoration Program is making one of the most concerted efforts, doing a physical count of abandoned properties to link them to the owners of record, she said.
“Municipalities are going to have to enforce the law, but they’ve been asking for it,” Rice said. “I know that Mayor (Ras) Baraka is going to use it in Newark as part of a very aggressive program, and I’ve heard from East Orange, Jersey City, and some other places.”
At neighborhood meetings in recent days, Baraka told residents that code enforcement and tax collection are keys to improving the city’s financial picture and its quality of life. Employees of those departments, “need to know that they have the support of City Hall, that we’re going to back them up” if they issue fines or demand back taxes, he said.
While such efforts might involve upfront costs, Darcy said the new law ultimately should generate revenue for towns, and it requires that 20 percent of the fine revenues be used to support code enforcement.
Violators should know they are “going to have to pay these fines at some point,” he said. “The law helps municipalities by making these fines a priority for payment when a property goes to closing. You’re not going to be able to walk away.