31 Essex St. in the Highland Park section of Brooklyn. Photo: Google

Empowered by a recently enacted state law, the New York City government is stepping up enforcement on so-called “zombie properties,” vacant homes that are underwater on their mortgages, and has filed lawsuits against lenders holding onto five such properties in Brooklyn.

The city filed suit against Wells Fargo, CitiMortgage and three other lenders, which each hold one foreclosed property in Brooklyn, for more than $1 million in penalties for vacant properties where city inspectors found multiple code violations.

The city filed its claims against the lenders, which also includes Ocwen Loan Servicing, Rushmore Loan Management and Seterus, under the 2016 New York State Zombie Property and Foreclosure Prevention Act, which requires banks and subcontractors to regularly inspect properties that are facing foreclosure and to take over maintenance costs when properties become vacant.  

The law was also intended to shorten the time that properties lie vacant by allowing mortgage holders to file for expedited foreclosure and sale judgments.

Following passage of the law, the city's Department of Housing Preservation and Development launched its Zombie Homes Initiative as a pilot program—the suits filed in Brooklyn Supreme Court, which each pertain to one to four family homes that remain vacant and distressed, are the first that the city has filed against noncompliant mortgage holders under the state law, an HPD spokesman said.

According to a release from the department, HPD's zombie home hunt, which was funded with settlements with banks that were obtained by the New York Attorney General's Office, identified up to 4,000 zombie homes throughout the city.

For the five properties named in the lawsuits, the city alleges that it notified the lenders multiple times that their properties were not in compliance with state law and did not receive responses.

Zombie homes tend to have negative effects for lenders and borrowers as well as the those who live near them, who may be subjected to eyesores that attract health and safety issues.

In one example, a neighbor living next to the zombie home at 31 Essex Street in the Highland Park section of Brooklyn, which is the property identified in the city's suit against Ocwen, told NBC 4 that the property is notorious for drawing squatters and drug users.

The city alleges that the Ocwen property has been vacant at least since Oct. 31.

Cristina Gonzalez of Linebarger Goggan Blair & Sampson, who is listed as special counsel for the city's Law Department on the five lawsuits, referred questions to HPD.

In a news release, Corporation Counsel Zachary Carter said the city's zombie homes program has had success in getting banks to maintain foreclosed properties.

“But a stubborn few financial institutions have ignored HPD's notices and have failed to meet their legal obligations to prevent these properties from becoming community eyesores,” Carter said.

Kevin Friedlander, a spokesman for Wells Fargo, said that company has not yet seen the lawsuit and thus could not comment on specific allegations.

“We work diligently to manage vacant properties for which we are responsible and in a manner that benefits the community,” Friedlander said. “This includes registering vacant properties as required by local ordinances and resolving any violations, fines or fees.”

John Lovallo, a spokesman for Ocwen, said it is conducting a “thorough review” of the status of the property identified in the lawsuit against it.

A spokesman for CitiMortgage said the company would not comment on ongoing litigation, Rushmore did not respond to a request for comment and a representative for Seterus could not be reached for comment.  

According to PropertyShark, Brooklyn ranked second in the five boroughs for new foreclosure filings in the second quarter of this year, with 226; Queens led the city with 356.

Read more:

Recent Efforts to Speed Up Foreclosure Proceedings in N.Y.

Section Addresses 'Zombie Housing' and Title Agent Legislation

New York Program Reclaims 1,600 'Zombie' Properties