REAL ESTATE

NJ foreclosures: Why they can bring down your property value, too

Mike Deak
Courier News and Home News Tribune
New Jersey has one of the highest home foreclosure rates in the United States. That has resulted in a high number of abandoned houses, called "zombie properties."

Suppose you get a new job and have to move to another state. You decide to sell your house, but you live next door to an empty house that has been in foreclosure for more than a year. 

The grass is overgrown, shingles are missing and the paint is peeling because the former occupants have fled because they know they're going to lose the house. But the mortgage lender has yet to take possession of the property.

Do you think it's going to be easy to sell your house, which you kept in excellent shape, near your asking price if there's a zombie house next door?

In this case, the zombie is not a ghoul who eats brains; it's an abandoned house which eats property values.

Zombie houses are created when properties under financial distress are abandoned. But they remain empty because the bank foreclosure process in New Jersey has become so protracted, due to the high number of houses in foreclosure, that the maintenance of the property, from the lawn to the roof, is neglected. 

A long time

The average foreclosure process in New Jersey takes more than 1,000 days.

"It's a bit excessive," said Mike Affuso, executive vice president and director of government relations of the N.J. Bankers Association. "It's a ridiculously long period of time."

That's an understatement.  New Jersey has one of the longest foreclosure processes in the United States.

And that's troubling because, unlike most other states, the rate of foreclosures is increasing in New Jersey, according to ATTOM Data Solutions, which maintains a national database of foreclosure and other real estate trends.

Though foreclosure activity throughout the United States dropped to a 12-year-low, New Jersey bank repossessions of homes increased by 19 percent in 2017, the highest level since 2006, according to ATTOM Data Solutions.

READ: Guiding principles to prevent foreclosure

READ: Facing foreclosure? Face your fears

The state also led the nation, almost a decade after the start of the Great Recession, with the highest foreclosure rate, 1.61 percent of properties. The lingering impact of Superstorm Sandy also plays a part.

With that large number of troubled properties, New Jersey has one of the longest average foreclosure times in the nation. The average foreclosure time in New Jersey, from when mortgage payments are overdue to a sheriff's sale, is 1,298 days, more than three years. Only Indiana (2,370 days), Nevada (1,933 days), Florida (1,493 days) have longer times.

Michael Affuso

"Who wants to go through a 1,000-day hassle?" Affuso asked. "How long is long enough?"

That lengthy time causes a headache for lenders and neighbors.

For lenders who are looking for the money that is owed, the long wait for the completed foreclosure amounts to a subsidy for the people who live in the house but are not paying, Affuso explained.

Community banks in New Jersey are trying to expedite the process.

"As Amboy Bank’s general counsel for the past 23 years, I have naturally seen my share of foreclosures. " said Cyndi Bleir, senior vice president and general consul at  Amboy Bank in Old Bridge. "Fortunately for Amboy Bank, we have been able to work through our foreclosures, such that we currently have less than 20 in the entire bank."

At Amboy Bank, Bleir said, its "Foreclosure Unit has become both more efficient in processing the foreclosures and responding to inquiries. At the current time, it can take as little as six months from the filing of a foreclosure complaint to the entry of final judgment in an uncontested matter. This was definitely not the case several years ago when the process was taking upwards of a year a more."

While banks are willing to work with delinquent residents through mediation, chances are that in the long run, the property is already on the road to foreclosure and can not be detoured.

Sometimes debtors believe that a life change — a new job or inheritance — can derail a foreclosures but that rarely happens, Affusso said.

"If you can't afford it today, you can't afford it tomorrow," Affuso said. "Once it starts going south, it gets more difficult."

With interest rates on the rise from historical lows, mortgages are not going to get any  cheaper and if you fall behind, it's going to be impossible to erase what is owed. And there's no easy way to escape because there are no magic beans to grow money.

"At the end of the day, it's math," Affuso said. "If the math doesn't work out, it doesn't work out."

It takes New Jersey banks more than three years to foreclosure on a property, like this house in Manville that recently went through a sheriff's sale.

Most people who default on their mortgages face up to that reality and find another place to live because they realize foreclosure and the sheriff's sale are inevitable, Affuso said. A minority remain in their homes, playing a risky waiting game through every possible legal maneuver or denial of the irreversible outcome.

Because most people find a new place to live in that three-year foreclosure period, that creates a thorny problem for the bank and the neighbors.

When no one is living in the house, its condition deteriorates because there is no one to mow the lawn or make repairs. Because the house's ownership is in limbo, who is responsible for maintaining the property? Who pays the property taxes?

That's when a zombie house rises from a dead mortgage.

Combating zombies

Zombie houses not only drive down property values, they also potentially become public health hazards.

Rodents, who ignore fences, find a safe home in an overgrown property. The house becomes an easy target for vandals and illegal dumpers; more ambitious culprits eye copper plumbing and other fixtures for recycling profit. Zombie houses also may attract squatters.

Plus, the abandoned properties become a financial burden for municipalities because the taxes are not paid and the listed owner, who's long gone, doesn't care.

Though they've left the house, borrowers are typically often unaware that they are still responsible for taxes and fees, and while they may presume that the bank or mortgage holder is on the hook, the borrowers could be subject to wage garnishment, major hits to their credit, and seizure of any tax refunds. 

The state's Abandoned Properties Rehabilitation Act (APRA) gives municipalities the ability to address problem properties. Most municipalities have ordinances which allows them to bill property or lien owners if municipal crews or contractors must remove a condition that threatens public health or safety or violates property maintenance codes.

Some towns have ordinances that require vacant properties to be registered with the municipality so that if there is a maintenance condition that demands the municipal action, the party that controls the property — a bank, mortgage company or absentee owner — will be billed for the work. Keeping track of who controls the property is sometimes a difficult task because often the original mortgage holder has sold the mortgage to another financial institution.

Many Central Jersey towns are relying on their own property maintenance ordinances to make sure that zombie properties don't have a negative impact on neighborhoods.

South Bound Brook Administrator Don Kazar said the situation has gotten better, but it's difficult when the town has to deal with a national bank and employees who may be more than a thousand miles away.

If a property falls into bad shape and neighbors start complaining, then the borough investigates the situation. Mostly the complaints come in summer when the grass gets out of control, Kazar said.

A summons is issued and if the condition is not rectified, a violation is given. Sometimes that creates problems because the borough doesn't know who should get the notice — the homeowner, original mortgage holder or a a new mortgage holder.

"We try to keep track of them, but it's hard," he said.

If that doesn't result in any corrective action, then the borough hires a landscaper to cut the grass and places a lien on the property to cover the cost, Kazar said.

The lien is attached to the property so it shows up whenever a title search is conducted, Kazar said.

Somerville has been "very diligent" in handling zombie properties, said Mayor Ellen Brain. "We do what we can to maintain the neighborhood."

Though the borough doesn't have a vacant property registration ordinance, it does receive a notice whenever a property enters the foreclosure process, said Borough Administrator Kevin Sluka.

The borough has streamlined its enforcement process so that one official is responsible, instead of the matter "bouncing from department to department," Sluka said.

Besides high grass, the borough has also found itself having to deal with health and safety issues, such as pools. "We go in and there and clean it up," he said.

But it still takes a long time to go through the process, he said. Resolving the problems at one house in the borough took 18 months, he said, but it eventually resulted in "significant" fines levied in municipal court.

Like South Bound Brook, Somerville has yet to enact an abandoned property registration ordinance, but, if conditions get worse, the borough would be open to consider one for adoption, Sluka said.

Woodbridge Township also has an aggressive program to deal with the impact of abandoned properties in the township, including the demolition of abandoned or neglected swimming pools which could become breeding grounds for spreading illness.

““The economic climate of the past several years has resulted in the unfortunate increase in foreclosure actions with a resulting uptick in abandoned and/or vacant properties in many of our residential neighborhoods. Beyond lowering the value of neighboring homes, abandoned and distressed properties cause significant losses in property tax revenue, generate other economic costs for the township, and represent a real safety issue,” said Mayor John E. McCormac last summer, when the township took down swimming pools at three abandoned homes.

In the township, the Woodbridge Redevelopment Agency has identified dozens of  abandoned and/or vacant township properties. Under township ordinance, the owners have 45 days to respond with a plan to sell, rehabilitate or otherwise return the property to productive use.

If the Redevelopment Agency does not receive a response from the property owner, the agency will initiate proceedings to acquire title to abandoned and/or encumbered properties, redevelop some properties to improve the neighborhood, and/or work with other agencies to hold onto the properties for future uses — in the interim, the Department of Health & Human Services and the Department of Public Works will identify and eliminate abandoned pools and other potential mosquito breeding grounds.

Township residents are encouraged to report vacant/abandoned properties to the Public Works Hotline at 732-726-2325. All information will remain confidential.

Staff Writer Mike Deak: 908-243-6607; mdeak@mycentraljersey.com