The Business Council opposes S.4182 (Salazar) / A.1800 (Magnarelli), which would require holders of mortgages on vacant and abandoned residential properties to pay HOA and cooperative fees during a pending foreclosure.
Chapter 507 of the Laws of 2009, passed in the aftermath of the mortgage foreclosure crisis is a very comprehensive and prescriptive law enumerating the responsibilities of a lender before, during and after a foreclosure. The Legislature added to these requirement in Chapter 73 of the Laws of 2016, mandating that lenders upkeep and secure properties even before the lender actually had ownership of the property.
The sponsors’ memo indicates that the impetus for this bill is that foreclosures place a financial burden on an HOA which maintains an abandoned property. This reasoning is flawed. In these cases, a lender is in no better position to have anticipated foreclosure than the HOA and should not be unfairly given another financial burden in the foreclosure process beyond those enumerated in the laws mentioned above.
While condominium and co-ops boards have somewhat different application processes, they are both remarkably in-depth and both have the ability to essentially reject an applicant; one with the ability to reject a buyer and one with a right of first refusal to purchase a property. These boards routinely ask for documents detailing information about employment history, personal background and finances, not limited to a completed credit release form, contract of sale, recent tax returns, and landlord and bank references. In addition these boards often require personal and business reference letters.
This process is far more in-depth and personal than a mortgage application process. The condominium and co-ops boards each have ample opportunity to weigh the risk of acceptance of a new member and each of opportunity to refuse that membership. This system is designed specifically for the purpose of insulating members from the risks associated with abandoned units. Accordingly, this bill is at best duplicative, giving these boards the right to refuse members but none of the associated financial risks, and is nothing more than a shift of that financial risk from one party to an HOA agreement to another third party not currently bound by the same. This shift is unfair and moreover, will not lead to a decrease in mortgage foreclosures.
Instead of imposing additional costs and complexity on mortgagees engaged in foreclosure on delinquent properties, the Legislature should focus on streamlining the state's already complex and lengthy foreclosure process. Such an approach would be more effective in preventing the physical deterioration of delinquent property and the resultant adverse impact on neighborhoods.
For these reasons, The Business Council opposes approval of S.4182 (Salazar) / A.1800 (Magnarelli).