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Banks have to do more to maintain ‘zombie’ homes that drag down whole neighborhoods

The name conjures up something from TV and the movies, which seem replete with the walking dead these days. But the problem of zombie homes is painfully real and they are dragging down the neighborhoods they inhabit.

Zombie homes are those that have been abandoned by their owners, but that the bank holding the mortgage does not want to repossess. The reason, according to State Sen. Jeffrey D. Klein, D-Bronx, is that the banks don’t want to be on the hook for maintenance costs. While that may save the banks money, it allows the property to deteriorate and takes the neighborhood with it.

Klein has proposed legislation to address this problem. It would be, he believes, the first such law in the nation. One bill would create a registry of foreclosed homes and allow municipalities to use it to track complaints and violations. Another would expand the requirement that banks maintain foreclosed properties to include zombie homes, levying fines of $1,000 per day, per violation. Finally, the measure proposes creating a Community Reinvestment Program fund to refinance mortgages and buy properties for eventual repair, conversion to affordable housing or demolition.

Whether his prescription, offered on behalf of Attorney General Eric T. Schneiderman, represents the best solution is impossible to say right now, but it’s a plausible one. Unless someone can improve upon it, the Legislature should adopt his bill and Gov. Andrew M. Cuomo should approve it. There is only disadvantage in continuing to allow this practice to infect residential areas, and typically those that are home to low-income families.

Among those that should be suggesting improvements but isn’t is the banking industry, which Klein describes as hostile to his legislation. That’s a mistake.

First of all, some legislation is going to pass somewhere at some point. How can it not? Zombie homes are a blight that steals from the surrounding property values and depresses the value of tax rolls. They are a public nuisance and thus constitute a legitimate public interest. The public is bound to respond and the appropriate way is through its legislatures. That’s what Klein and his supporters, including Sen. Timothy Kennedy, D-Buffalo, are doing.

Here are some measures of the problem, presented in a report by Kennedy and the Independent Democratic Caucus, of which Klein is a member. Titled “The Next Great American Bank Robbery,” the report shows that:

• In Erie County, 81 zombie properties are harming the values of around 1,387 neighboring properties, with each one falling about $1,500 in value per year.

• The estimated annual cost to Erie County municipalities is $186,273.

• In addition, 78 bank-owned properties in Buffalo are depreciating the value of 2,303 homes by a total of $2 million.

Clearly, this is a significant problem and one that is replicated around New York. Not only is this an appropriate matter for legislators to consider, it is one they would be remiss to ignore.

Not unexpectedly, the mortgage holders that are most liable for this problem are big, national banks that have little connection to the cities in which they do business. The report shows the top five banks causing “significant house value depreciation” are US Bank, Citi Mortgage, HSBC, Bank of America and Wells Fargo. Cumulatively, they account for about $1.2 million in depreciation in Erie County.

M&T Bank shows up at sixth on the list, causing far less deprecation, at $86,316 – less than half the liability caused by Wells Fargo, fifth on the list.

In a sense, the banks are being asked to account for problems that aren’t of their own making. If a homeowner loses his job and can’t pay the mortgage, that’s not the bank’s fault.

Still, the bank made the loan, presumably after careful evaluation of the borrower’s status, with the expectation that it would create profit. It took a risk – a reasonable risk, one hopes, but some risks don’t pan out and they must be considered as a cost of doing business. Certainly, whole neighborhoods and municipalities cannot be expected to pay the price for a business decision that goes south.

As a member of the Independent Democratic Caucus, which aligns with the Senate Republicans and helps to preserve that party’s control of the chamber, Klein has disproportionate influence. That gives his measure a good chance of passing and it means that the banking industry should take off its blinders and understand that, sooner rather than later, this issue will be addressed. It would be better for all if the resolution represented a joint effort.