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What Can Be Done about “Zombie” Properties?


January 17, 2017 by Oskar Rey
Category: Court Decisions, AGO Opinions and Regulations , Property Nuisances

What Can Be Done about “Zombie” Properties?

In March 2011, Laura Jordan returned home from work to find that the lock on her home had been changed. She had defaulted on her loan, which was secured by a deed of trust on the residence. A representative of her lender had changed the lock on the front door. There was a notification which stated that the representative determined the home was “unsecure or vacant” and that it was “secured against entry by unauthorized persons to prevent possible damage.” A phone number was provided to call to obtain reentry. Ms. Jordan called the number and removed her belongings the next day. She later became a member of a class action that challenged the deed of trust provisions that authorize a lender to enter and secure property prior to foreclosure (i.e., “entry provisions”).

In July 2016, the Washington Supreme Court issued its decision in the case (Jordan v. Nationstar Mortgage LLC) and found that the entry provisions violate state law and are therefore unenforceable. Under RCW 7.28.230(1), a lender may not take possession of a property prior to foreclosure. Citing this statute, the court ruled that changing the locks constituted an exercise of control over the property that amounted to taking unlawful possession prior to foreclosure. Although no local government entity was a party to Nationstar, the case significantly impacts the ability of local government to take action with respect to vacant or “zombie” properties.

The Scope of Nationstar

The outcome of Nationstar is not surprising given the fact the property apparently was occupied. However, the reasoning of Nationstar seems to apply in cases where property is vacant or abandoned as well. The Court invalidated the entry provisions in the deed of trust, which were broadly drafted, so there does not appear to be a basis for differentiating between occupied and abandoned residences. 

Therefore, it appears the ruling in Nationstar applies to zombie properties. The case presents difficulties for cities and counties because it makes it more difficult to work with lenders to secure zombie properties and mitigate their impacts.

The Impact of Nationstar on Local Government

Zombie properties are a problem because they are unmaintained, attractive to squatters, and can become a source of illegal activity. Until Nationstar, local government had the option of requiring lenders to secure and maintain abandoned properties. For example, the cities of Spokane and Bremerton created abandoned property registries that require lenders to report and take action with respect to zombie properties. Other jurisdictions worked with lenders on a more informal basis to address the impacts of zombie properties. 

In light of Nationstar, what options remain for addressing zombie properties? There are several:

  • Redefine what remedies your jurisdiction will seek from lenders. Nationstar is about lender actions that amount to taking possession of the property, such as changing the locks. Requesting lenders to take less drastic action, such as mowing the grass and maintaining the exterior of the property, alleviates the visual impacts of a zombie property and would not seem to violate Nationstar. 
  • Determine if the property owner will consent to lender entry to secure the property. In Nationstar, the Court noted that a lender may take possession prior to foreclosure if the property owner agrees. If the property is abandoned and the owners can be located, they may agree to entry so that the property can be protected from trespassers and the elements. Consent may be in the best interest of the property owners because it preserves the value of the collateral and maximizes any surplus funds which may be available to the owners after foreclosure. 
  • In cases where squatters have moved in and are creating problems for neighbors, consider criminal or administrative enforcement options against them. Again, the owners can be of assistance if they are willing to file a trespass report and indicate that any current occupants are unauthorized. In addition, squatters can be prosecuted under chapter 9A.61 RCW if they divert or make unauthorized connections to obtain utility service. If the structure becomes dangerous or does not have water service, it may be possible to post a “do not occupy” notice on the property so that subsequent entry becomes a criminal violation of the building code.
  • For the absolute worst cases, jurisdictions can (1) seek appointment of a custodial receiver under chapter 7.60 RCW to secure and manage zombie houses; or (2) have them declared a nuisance and abated under chapter 7.48 RCW. Both of these options can be costly and time consuming and require a superior court order.

Close coordination with your jurisdiction’s legal counsel is important in these types of cases. If your jurisdiction has other effective methods of dealing with zombie properties, I would love to hear about them in the comments below or by email at orey@mrsc.org!

About Oskar Rey

Oskar Rey has practiced municipal law since 1995 and served as Assistant City Attorney for the City of Kirkland from 2005 to 2016, where he worked on a wide range of municipal topics, including land use, public records, and public works. Oskar is a life-long resident of Washington and graduated from the University of Washington School of Law in 1992.

VIEW ALL POSTS BY Oskar Rey

Comments

"Oskar, Have you considered how this relates to the condemnation of blight creating properties under RCW35.80A? This may get lenders to move as the compensation is limited to fair market value."

Kinnon Williams on Feb 8, 2017 7:01 PM

"Thanks Carol! I had no idea about the Ohio plywood ban--I will check it out!"

Oskar Rey on Jan 26, 2017 11:40 PM

"HI Oskar: Did you hear that Ohio has banned the use of plywood to close up vacant properties? In support of the ban, they argue that homes boarded with plywood attract squatters. It is also unattractive, and when a few homes in a block are boarded up, it also reduces property values. There is a clear plastic board that is used as a replacement. It prevents entry and doesn't look terrible. I guess first responders aren't crazy about it, because in the event of a fire, they could just pull plywood off the windows, but a chain saw is needed to cut through the clear plastic. Anyway, there is more on the Northwest Public Radio website. Thanks for a great article!"

carol morris on Jan 26, 2017 6:22 PM

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