Abandoned Property Ordinances Debated
Local governments are not specifically pre-empted in their ability to enact local rules dealing with foreclosed properties even though SB 1137 (Perata) put a general rule in place statewide. Some cities recently have been trying to impose obligations and fees on foreclosing lenders even before the lender takes title to the property at the time of foreclosure sale.
Though unlikely to stand a test of law, the overreaching nature of the these property maintenance ordinances can end up creating unworkable burdens for Realtors attempting to list or sell REO properties. Some local jurisdictions are tracking NOD’s and attempting to require the lender of record to maintain the property even through the foreclosure process. Of course we know how successful that is since some properties get transferred numerous times prior to sale, or transferred to an asset manager or other elements preventing the city from knowing who the true owner of record is.
Lenders also rightly point out that t
to go on the premises until the sale is complete and they take the property back. But this hasn’t stopped municipalities from imposing fines of up to $1,000/day for unmaintained properties. But then the cities figured out – hey, if we apply a lien prior to the foreclosure sale the lien gets wiped out. So they’re waiting until after the lender takes the property back and then applying their lien so it is not invalidated by the sale.
The problem is that some lenders have attempted to have Realtors cover the deficiency out of pocket from the REO lenders set fee. In other words, the cities are doing something borderline illegal and rather than fight it some lenders are attempting to ‘shift’ these responsibilities to the Realtor.
This is a whole different problem than some Realtors simply not knowing the rules, not registering an REO property as required by valid city ordinance, or doing their job and the lender holding them responsible for that.
A second problem has arisen in some areas where a lender has actually attempted to comply with these pre-foreclosure issues by taking over maintenance of what appears to be an abandoned property only to find out they have locked out the legitimate owner or a tenant, or even locked-out Realtors who had listed the property for short-sale.
CAR determined that it would not sponsor nor support legislation extending a lenders obligation to maintain a pre-foreclosure property. Rather, it would explore ways to extend the reach of SB 1137 to pre-empt local law which states that locals cannot cite property or create a lien for violations of a maintenance ordinance until and unless the property has been foreclosed, that the lender has been properly noticed and been given a corrections period of not less than 30 days.
While we are not currently aware of any cities in our region trying to circumvent the law by applying these proscriptive liens, if you become aware of local problems, please notify GeneWunderlich@srcar.org immediately.