Throughout New York state, local governments are trying to figure out who to hold responsible for the upkeep of thousands of foreclosed residential properties. These properties can get run down and pose a risk to public safety. But thanks to the complicated world of mortgage-backed securities and mortgage servicers, it can be almost impossible to find out who actually is responsible for the property.
Most often, when there is news about the foreclosure crisis, it is a story about numbers. But four years ago, Senator Jeff Klein came face-to-face with the reality of the crisis when he followed up on a constituent complaint about a Throggs Neck foreclosure.
"There were squatters living in an abandoned property that was now owned by a bank, due to foreclosure, and it became a drug den for local youth. It had pit bulls," Klein said.
What Klein found was so alarming he decided to get a law on the books that would force banks to take responsibility for the physical condition of the foreclosures.
2321 Prospect Avenue
Klein's law has been on the books since 2009, but whether it's working as intended is an open question. Klein recently came to 2321 Prospect Avenue in the Bronx to push for stricter enforcement by the city of his law. Back in April, a 12-year-old boy and his parents died there in a fire. They were tenants in an illegally subdivided foreclosure that no one wanted to claim ownership of. Klein said his law was specifically drafted to insure that banks maintain the proprieties they foreclose.
"My legislation requires that lending institutions or banks maintain these properties just as any other home owner would have to maintain these properties, and it kicks in at the time of foreclosure," Klein said.
Today, 2321 Prospect is boarded up and covered in garbage.
The lawyer for Domingo Cedano, the last person to hold the title, told WNYC that Cedano walked away from the property four years ago. His name still appears on City records. The foreclosing party, the Bank of New York Mellon, said it's only a trustee for investors in mortgage backed securities that included Cedano's original mortgage. When asked by WNYC about who was responsible for the physical condition of the building, Mellon offered up Vericrest, the mortgage's servicer.
Vericrest denied that it had a property maintenance role, but records indicate it has paid the property tax bill.
Klein said his law, when enforced, could cut through this kind of mortgage backed 'three card monte.'
"We have a very tough law on the books which allows the local building department, anywhere in the state of New York, to go in to make these repairs after seven days notice, and sends the lending institution and the bank the bill. So you can't get any easier than that," Klein said. "We can prevent fires, we can prevent dangerous situations and most importantly we can save lives."
State Senator Diane Savino, who co-sponsored Klein's bill, stood with Klein in the Bronx to press the point that banks must maintain foreclosures.
"Don't drive down our property values," Savino said. "Don't contribute to the decline of our communities the way you have contributed to the decline of our economy."
Klein said in the city alone, there are 2,000 foreclosed proprieties that may need special attention, some of them with dozens of serious violations.
"As you can see here, there is a building not that far away on Martin Luther King Boulevard, here in the Bronx, that has 84 open violations — 84 violations — some of them very serious."
2321 Prospect Was On the City's Radar
But Tony Sclafani, a spokesman for the City's Department of Buildings, disagreed that Klein's law gives the city the right to enter foreclosure properties like 2321 Prospect. He said 2321 had been on DOB's radar well before the April fire for a wide range of alleged violations.
"In regards to 2321 Prospect Avenue, the department responded to that location ten times before the fire on April 25," Sclafani said. "We attempted to gain access and we were denied access ten times."
Sclafani argued that Klein's law can't trump Constitutional protections. "The law does not supercede the limitations imposed by the Fourth Amendment to the U.S. Constitution. Therefore, the law does not give the Department of Buildings the power to force entry into a private residence,"
Beyond the Five Boroughs
But Klein's law may be having the desired impact in other communities.
Joel Epstein, a code official with the Town of Clarkstown in Rockland County, noted that local officials took action on derelict foreclosures and billed the banks. "I have noticed that some unknown party is coming around and mowing the law, and I think the state legislation is what triggered it," Epstein said.
New York State Comptroller Tom DiNapoli said that unmaintained foreclosures are not just a public safety hazard, but are eroding property values statewide. He's so concerned that local governments aren't aware of their potential reach under Klein's law that he's conducting a statewide survey. DiNapoli said the very structure of the current mortgage industry can make it impossible to determine who is actually responsible for the property itself.
"The more difficult it is at a time when everyone is already stretched for resources the easier it is to say 'we can't cut through this' and than you have the kind of neglect as we saw in the Bronx when a real tragic situation develops," DiNapoli said.
Back on Prospect Avenue
Back on Prospect Avenue in the Bronx Chancy Marsh the Fourth is the owner of 2319 Prospect, the building next to the site of the fatal fire. He says before the fire 2321 had become a place for drug activity but that the family that died were Mexican immigrant who were only trying to make a better life for their child.
Marsh's house was so severely damaged by the fire that he can't live in it. He says he has to be on constant vigilance that squatters not take it over. He keeps a guard dog inside.
“If I don't come by here every day, walk my dog if I don't come here and do that these people will take a hammer and nails break it in put new windows, live in there, sell drugs, prostitution do all the things that they do,” says Marsh.
When Marsh is asked about another vacant and fire damaged three story building on the block, two doors down from his, he just rolls his eyes. He says it's an incomplete residential project that now is sidelined. “They obviously did not have the means to see it to the end,” Marsh says. “There is tons of debris and construction garbage in the back. This is our City this is the City that we live in.”
After the fire, an administrative law judge with the City's Environmental Control Board ruled that the Bank of New York Mellon could not be held responsible for violations the city issued it, in the aftermath of the fire, because they did not have title to the property. He ruled that Domingo Cedano, whose lawyer insists he walked away from 2321 Prospect four years ago, was on the hook for $25,000 in fines.
The city is appealing the judge's decision to let the bank off the hook.
A spokesman for Bronx District Attorney Robert Johnson confirmed there is an ongoing criminal investigation into the fatal fire at 2321 Prospect Avenue.