Nationwide, one out of every five homes in foreclosure are abandoned — equating to a total of 170,000 abandoned homes, according to recent studies. Florida accounts for 33% of that figure, or about 55,000 abandoned homes. Florida cities, in fact, represent 85 out of the top 100 cities based on total number of owner-vacated foreclosures. Lee County’s city of Cape Coral is #13 on that list, with over 2,200 owner-vacated foreclosures.
To combat the security problems that can arise from vacant homes and the potential blight on neighborhoods and communities, counties and municipalities across Florida have responded by passing Abandoned Property ordinances. These ordinances place registration, inspection and maintenance obligations on lenders during the mortgage foreclosure process. Lee County recently passed its Abandoned Property Ordinance, which took effect January 2014:
When Registration is Required for Lenders
The lender obligations under the ordinance are triggered in a number of instances, but most commonly, lenders will need to register their properties when either a notice of foreclosure is filed or a notice of default is given to the property owner. Lenders should be cognizant that a mere default letter to the borrower — without filing a foreclosure lawsuit — requires the lender to register the property.
Additionally, lenders who have acquired title through a deed in lieu of foreclosure or a foreclosure sale are required to register their respective properties, even if they held title prior to January 1, 2014 – i.e., lenders who acquired title prior to the ordinance’s enactment are not exempt.
The ordinance does not distinguish between commercial and residential properties. For example, a commercial lender who has provided a notice of default to a property owner or who has acquired title through a foreclosure sale is required to register the property with the County. Nor does the ordinance distinguish between institutional lenders and private lenders.
What Registration Entails
Within 10 days of taking action that triggers the registration obligation, a lender must:
(1) complete the County’s registration form and pay an annual $150 fee for each property subject to registration. The registration form requires the financial institution to select and provide contact information for a property manager designated for the maintenance and inspections obligations;
(2) have the property physically inspected:
(i) if the property is “occupied” the financial institution must continue to inspect the property every three months;
(ii) if the property is “abandoned” the financial institution must inspect the property every 60 days. For abandoned properties a conspicuous sign must also be placed inside a window facing the street with font large enough to be read from 45 feet away that provides the property manager’s name and contact information.
The ordinance’s maintenance obligations involve security and appearance. Generally, the ordinance requires financial institutions to maintain the landscaping on the property and to keep it free from trash, debris, accumulation of newspapers, graffiti, etc; pools and spas must be maintained so that water remains free of pollutants and debris; and, windows, doors, and any other openings must be closed and locked.
A financial institution who fails to register, inspect, or maintain the property will be subject to fines by the County. Moreover, if the County takes on maintenance itself, expenses may be recovered by placing a lien against the property.
Speculation on Enforceability
While Abandoned Property Ordinances have practical aims, some have questioned whether the ordinances are legally enforceable. The crux of the speculation lies in the relationship between the lender and the property owner during the foreclosure process. Throughout the foreclosure process, and until a foreclosure sale or deed in lieu of foreclosure is complete, the property owner remains just that, legal owner of the property. Any right the lender has to access the property prior to acquiring title turns on whether the mortgage grants the lender the right to access the property.
As the argument goes, an ordinance requiring a bank, who only has a lien on the property, to enter upon and inspect a home could be subject to a trespass claim from the property owner (assuming the loan documents do not give the lender the right to access the property upon default, which many do). It is easy to imagine a problematic scenario, given the ordinance’s requirements, that could result from a lender accessing what it believes to believe an abandoned property.
Thankfully, we are not aware of any such reports to date. Additionally, it appears that the ordinances have yet to be challenged in court. Nevertheless, lenders or homeowners associations could eventually seek a judicial determination of an ordinance’s enforceability.
If you are a lender or homeowners association, it is best to contact a real estate attorney to determine your obligations under the ordinance.