Law lets municipalities fine creditors if properties fall into disrepair

Published November 10, 2015
By Kate King

EAST ORANGE, N.J.—The light-green house on the corner used to look like all the other tidy homes along tree-lined North Grove Street, but last week a city cleanup crew encountered months-worth of debris and overgrowth.

“She used to keep it nice,” longtime neighbor William Berry said of the woman who lived there for years. “She used to have flowers in the front.”

Today, the single-family home with broken basement windows and peeling paint is vacant and in foreclosure, making it one of East Orange’s 423 properties considered to be “zombie foreclosures.” Some 160 of these homes are in such a state of disrepair that they have drawn complaints from neighbors and fines from the city.

New Jersey has the nation’s highest rate of zombie foreclosures, according to a report last month by market researcher RealtyTrac. There are 63,977 houses in foreclosure across the state, 6.2% of which are considered zombies.

Zombie foreclosures have fallen 43% nationwide in the past year, according to RealtyTrac, but in New Jersey they have increased 28.6%. The problem in New Jersey has been exacerbated by the lingering issues related to superstorm Sandy.

Last month, U.S. Sens. Cory Booker and Bob Menendez, Democrats from New Jersey, sent a letter to federal housing officials urging action to help homeowners and municipalities dealing with zombie foreclosures.

To help pay for the abandoned houses’ upkeep, some cities and towns are taking advantage of a year-old state law that allows municipalities to fine the creditors of vacant and foreclosing homes up to $2,500 a day if the properties aren’t maintained.

According to the law, local officials must inform creditors that the property they are foreclosing on has been abandoned and needs maintenance. The creditor has 30 days to comply before the city can issue fines.

Staci Berger, president and CEO of the Housing and Community Development Network of New Jersey, an organization that advocates for low- and moderate-income residents, said the law gives cities and towns the resources they need to combat blight.

“There’s a financial penalty for failing to maintain the property that isn’t borne by the taxpayers,” she said.

In East Orange, the house on North Grove Street was once owned by a businessman who died in 1994 and left the home to his three children, according to his granddaughter Judith Dunkley. The youngest, Sandra Mitchell, moved in after her father’s death but didn’t pay the taxes, Ms. Dunkley said.

Ms. Dunkley’s mother, the estate’s executor, had been paying the tax bill before she developed Alzheimer’s, though she didn’t live in the house, her daughter said.

Ms. Mitchell, who lived in the house for 21 years, said she left in early September after unsuccessfully fighting the foreclosure. She said she kept up the house for two decades and was willing to pay the tax bill, but had trouble getting the necessary paperwork.

“Had I been given notice in a timely manner where I could have made arrangements to do something, I would have,” Ms. Mitchell said.

East Orange has issued $4,000 in fines against Pact Investments LLC—which acquired the house through a tax foreclosure in July 2014—for failing to maintain the property, city officials said.

Avram Frisch, Pact’s attorney, said his client wasn’t aware the home was abandoned and denied receiving notice from the city about maintenance problems.

In East Orange, vacant and abandoned properties represent about 10% of the 4-square-mile city’s residential housing stock, according to city officials. Mayor Lester Taylor’s administration has started an aggressive anti-blight campaign, and in July hired 12 residents for a team charged with cleaning up vacant and derelict properties.

East Orange has issued court summonses to the creditors of 160 abandoned and foreclosing homes during the past year, which will net the city $320,000 in revenue if a court approves the fines, city officials said.

“We tell folks, ‘We don’t want your money, we want you to maintain your property,’ ” Mr. Taylor said.

The money will help pay for the cleanup, but city officials said they prefer that owners—whether they are residents or lenders of foreclosed homes—do the work themselves.

East Orange isn’t the only city issuing fines on foreclosing houses. Newark collects about $40,000 a week from creditors of vacant and abandoned properties, mainly multifamily houses, according to the city.

Other New Jersey cities and towns, including Paterson, Asbury Park and Deptford Township, are building registries to track vacant and abandoned properties, and plan to start issuing fines, officials said.

New Jersey’s banking industry supported the 2014 law, said Mike Affuso, senior vice president for the New Jersey Bankers Association. It is in the banks’ interest to keep up the properties they are planning to sell, and the law gives local creditors enough time to address blight before they are fined, he said.

“If you do the right thing under the law you’re not going to be penalized,” Mr. Affuso said.

Creditors most susceptible to fines are out-of-state, nonbank entities, which Mr. Affuso said own the majority of New Jersey’s vacant and abandoned homes and have greater logistical difficulty maintaining them.

Foreclosure in New Jersey typically takes 2½ to three years. The lengthy process increases the likelihood of owner abandonment and raises costs for lenders, Mr. Affuso said.

“There is an extraordinarily strong correlation between properties that have been in foreclosure for a long period of time and dilapidation,” Mr. Affuso said.

In East Orange, abandoned and blighted homes cause problems for the entire neighborhood, city officials said. Rats and feral cats take up occupancy, overgrown shrubbery blocks the sidewalk and lawns become targets for illegal dumping. Squatters sometimes move in and use the property to fix up old cars or store lawn equipment.

“For every block that has a blighted house, there are lots of other residents paying taxes,” said Christopher Coke, director of the East Orange Department of Public Works. “Why should they have to live next to something that’s in shambles?”

Corrections & Amplifications:
Four hundred twenty-three properties in East Orange are so-called “zombie” foreclosures. A headline on an earlier version of this article said 10% of the city’s properties. (11/11/2015)

Write to Kate King at [email protected]