Violations on Foreclosed Properties

Posted by kevin on August 3, 2011 under Foreclosure Blog | Comments are off for this article

The WSJ had an article yesterday about foreclosed homes in NYC with thousands of violations.  It said that tenants are living in horrible conditions.  The Pres of the NY Banker’s Association said that homes were actually owned by “lenders, not banks”

What up?

This is an interesting mix of foreclosure law, real property law, bankruptcy law and securitization law.  First, under real property law, the owner is responsible for the upkeep of his property.  If you do not maintain the property, then you can be sued if someone is injured on the property and you can be fined by the town.   Second, in foreclosure, there are judicial states and non-judicial states.  In judicial states (like NJ and NY), the borrower in foreclosure owns his home until the Sheriff’s sale.  That could be a year or 18 months after the filing of the foreclosure complaint.   That means that he is responsible for the upkeep and can be cited by the town for violations, or sued if someone is hurt.   So, the answer is do not move out until sale (stay or rent it out), and spend some money on upkeep.

Bankruptcy adds another twist.  In the petition/schedules, the debtor is required to state his intention about the property.  One of the options is to surrender the property.  That means just what it says,  you intend to give up the property.  But, it is not automatic.  The lender still must foreclose.  The lender can opt not to foreclose for a myriad of reasons.  In the meanwhile, the owner is responsible for upkeep.

Finally, the statement that the lender not the bank owns the property.  What is that all about?  It is an admission of what I have been arguing in court for the last 2 years.  The big banks listed as plaintiffs in foreclosures in NJ are sometimes  not the holders or owners of the Note, but the servicer of the loan.  This happens all the time with loans purchased by Fannie or Freddie.  Or, the plaintiff is the trustee  of the trust and the real owners are the investors.  At any rate, the so called bank is taking one position in court in the foreclosure and another position with the municipal authorities.