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Attorney general looks to make lenders care for delinquent buildings

Attorney general looks to make lenders care for delinquent buildings

State Attorney General Eric Schneiderman is targeting houses in the murky depths of foreclosure.
Attorney general looks to make lenders care for delinquent buildings
The front door is boarded up and padlocked Wednesday on this house at 1130-1132 Pleasant St. in Schenectady that is in foreclosure.

It took just three weeks for 530 Summit Ave. to devolve from home to wreck.

In January, the house was in good shape, but it was vacant.

Then a homeless couple cut off the locks and moved in with their young child. Three weeks later, the basement was full of water and the electrical system destroyed.

The squatters used the house as their home, Building Inspector Eric Shilling said, but they also cut out the copper pipes, selling the metal for what Shilling estimated was $10 to $12.

They didn’t turn off the water valves first, and water began to spew into the house at full pressure from the main city water connection, Shilling said. Eventually, “even they got concerned” and called 911, he said, but it was too late: The house may be beyond saving.

“It exponentially increased the rehab cost,” said Shilling.

Similar situations are occurring all over the city. There are as many as 1,000 vacant houses in Schenectady, and Shilling said he can’t keep up with the number of break-ins and thefts.

A new law proposed by state Attorney General Eric Schneiderman could put a stop to some of them.

Schneiderman is targeting houses in the murky depths of foreclosure. In many cases, owners move out

when they get a foreclosure notice from a bank, but the bank doesn’t complete the foreclosure process — or take ownership of the building — for years. In some cases, Schneiderman said, banks even work to slow down or cancel the foreclosure process after the residents move out. That leaves the property in limbo for years.

Schneiderman has named them “zombie” properties to emphasize the harm they can cause to the community.

“There are thousands of these zombie properties plaguing communities all across our state, and that’s just wrong,” he said. “We are looking to change state law so that lenders become responsible for delinquent properties soon after they are abandoned — not at the end of a lengthy foreclosure process.”

Not every vacant house in Schenectady is awaiting the end of a years-long foreclosure, but Assistant Corporation Counsel Carl Falotico said he encounters the issue every week.

“That is a huge problem I deal with all the time,” he said. “I have a pile of them sitting on my desk right now.”

This week’s stack: nine properties, all jointly ignored by the original owner and the bank. In one case, Falotico cited a man for code violations at 543 Schenectady St., only to learn the man gave up the property in 2009.

The foreclosure was pending, and the owner was in bankruptcy court. He agreed to surrender the property, Falotico said.

“That means the bank should take possession,” he added.

But the bank never did. Four years later, code enforcers got involved when part of the garage roof collapsed. Someone had also dumped a pile of construction debris on the property, Falotico said.

“The property’s in pretty bad shape,” he said. “It’s the standard case we get.”

Now he’s trying to track down the bank, which is not as easy as it might sound.

“The problem is it’s very labor intensive to find the right person,” he said.

In another case, code enforcers cited landlord Sarita Persaud, owner of 1130-1132 Pleasant St., where a front window is broken and plywood covering one door has been pulled back, allowing access. But when Falotico tracked down the owner, she said the bank told her to vacate the building in 2012.

“She provided us quickly with paperwork,” Falotico said.

Residential Credit Solutions Inc. initiated a foreclosure, but two years later, the process still wasn’t complete, Falotico said.

In an indication of how difficult it is to communicate with banks in these cases, a reporter was transferred four times during a call to Residential Credit Solutions. No one was willing to take the call, and although they agreed to take a message, no one called back.

In court, Persaud pleaded guilty to not listing her property on the city’s vacant property registry. She paid the minimum fine of $250 and promised to handle snow removal and other maintenance until the property is taken by the bank, Falotico said.

But snow covered the sidewalk weeks after the most recent storm, and it looked like someone had moved into the house. Neighbor Carol Isdell said she’s sure people have moved in.

“Because I know there weren’t curtains before, and now there are,” she said.

Isdell is worried about fires, noting that squatters often set them for heat. The last thing she wants is for her apartment to be destroyed by a fast-moving fire.

She wishes the rent-paying tenants had been allowed to stay during the foreclosure.

“Let them stay in their own home,” she said. “It’s better to have people living in there.”

Better than nothing

Schneiderman’s proposed law would encourage that by requiring banks to tell owners they don’t have to move out until the end of the foreclosure process. Isdell was startled to hear current laws allow owners to stay until a judge signs the foreclosure.

“I had no idea. You hear you have to move out right away,” she said.

Realtor Toni Lupi-Pallotolo objected, at first, to the idea of encouraging people to stay until they formally lose title to their house. During that time, they aren’t paying their mortgage, so they’re living rent-free.

“But that could be two years rent-free,” she complained.

Still, she agreed with Schneiderman it would be better than vandals moving in.

Thieves removed all the copper pipes from a vacant house across the street from her, she said. She had offered to buy that house when the bank began the foreclosure, but the bank did not respond to her calls.

“Now, it’s near tear-down status,” she said.

Building Inspector Shilling said vandals sneak in when they figure out no one is in charge of a particular property.

“It’s an invitation to those that may not have a place to live, those who want a place to conduct illicit activity, curious children,” Shilling said. “No one benefits from vacant property.”

He interviewed the couple who caused the water damage at 530 Summit St. to find out what they saw from the outside that convinced them to try living in the house. He said he’ll use their answers to try to formulate city policies to combat the issue.

Among other things, he’s considering shutting off the water supply to vacant houses. It’s costly, but then again, so is boarding up a house — about $600 for a two-family home, he said. He thinks vandals might stop breaking in if they knew there was nothing inside but walls and a roof.

“If they have absolutely no heat, no water, they can’t flush the toilet, that might deter them somewhat,” he said.

Lupi-Pallotolo is hoping Schneiderman’s proposal will get banks to take control as soon as residents move out. That, she said, could stop the vandals, too.

“It will make a big difference. I hope that it passes,” she said. “It really is blighting the community.”

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