Health and Safety Receiverships: the Cost Neutral Way to Abate Difficult Nuisance Properties

Written by Ryan Griffith

Ryan is an Executive Committee member of the Public Law Section. He began his practice at the Vallejo City Attorney's Office and created its Neighborhood Law Program and Vallejo's Health and Safety Receivership Program, which resolved issues with longstanding nuisance properties. The receivership program recovered hundreds of thousands of dollars for the City. Within his first year of practice, the Solano County Bar Association recognized Ryan's efforts and named him the Solano County Bar Association Young Lawyer of the Year in 2013. Since his time in Vallejo, Ryan has worked for several litigation firms that specialize in municipal code enforcement litigation. In 2017, Ryan joined Bay Area Receivership Group as its lead attorney. Ryan has worked over 100 receivership cases, written various articles, and provided MCLE webinars on the topic.^*

Almost every city and county in California has a code enforcement department ("Code Enforcement"). Code Enforcement ensures building and fire code violations are abated.¹ Typical issues Code Enforcement addresses include overgrown grass, illegal dumping, buildings with dry rot, deteriorated fencing, and other nuisances, which could negatively impact public health, safety, and welfare.² To resolve these problems, Code Enforcement typically cites property owners and directs them to remediate or remove the code violations on their property. In certain circumstances, a city, county, or other public agency (collectively "public agency") may even obtain an Inspection and Abatement Warrant to remediate or remove the violation itself.³ In most situations, these procedures are effective. However, almost every public agency has properties that have been longstanding nuisances and where typical Code Enforcement practices have been ineffective ("difficult nuisance properties").⁴

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Difficult nuisance properties typically involve a property owner who is unavailable, unwilling, and/or unable to remediate or remove the code violations. Scenarios may include a property owner who passes away without heirs, a property owner with hoarding issues and/or other mental health crises, a property owner involved in bankruptcy proceedings, a property owner who is a "slumlord," or a property owner in "zombie foreclosure."⁵ Of the scenarios listed, three are discussed in further detail below: deceased owners, zombie foreclosures, and slumlords.

When a person passes away, a death certificate is issued, but any property remains vested in their name unless affirmative steps are taken to remove them from the title.⁶ Therefore, if an owner dies without children, is estranged from their children, or has children that are unable or unwilling to deal with the property, the deceased owner remains on the title. In those cases, squatters may begin occupying the property with no running water, leading to unsanitary conditions. There have also been cases where squatters have accumulated junk and debris, engaged in conflicts in the neighborhood, and even set fires. Public agencies are limited in what they can do. Code Enforcement action is limited as issuing citations and fines to a deceased owner does not resolve the issues. Calls to law enforcement are also limited, as squatters may draft fake leases, and law enforcement may be unable to make spot determinations regarding the validity of leases. Finally, although occupancy issues are typically determined by unlawful detainer courts in eviction actions, in cases such as these, there would be no living owner to bring an action to evict the squatters.

A "zombie foreclosure" occurs when a bank starts the foreclosure process by issuing a Notice of Default to the property owner/borrower without finishing the foreclosure process.⁷ Most property owners, being unfamiliar with the nuances of foreclosure law, erroneously believe the bank's Notice of Default is a foreclosure. Based on the property owner's mistaken belief that their property was foreclosed on, they vacate the property. When a public agency brings an action against the property, the property owner mistakenly tells the public agency that the bank foreclosed on them. When the public agency reaches out to the bank, the bank will correctly say the property owner still owns the property.⁸

There are various theories as to why banks do not complete foreclosures on these properties. One theory is banks do not want to pay for property maintenance.⁹ Another theory is banks do not want to saturate the market by taking title to all the properties it could foreclose on to artificially increase property value.¹⁰ Finally, it could be that banks do not know what mortgages they own because of the MERS e-transfer system.¹¹ MERS allows banks to transfer mortgages and skip the county recorder.¹² If a bank uses MERS and robo-signers that rubber stamp mortgage documents without reviewing them, such as high school students to sign mortgage assignments,¹³ this further limits their ability to accurately track mortgages.

In 2013, Reuters estimated that 301,874 homes in the U.S. were in a state of "zombie foreclosure."¹⁴ Emory University School of Law,¹⁵ Boston College Law School,¹⁶ UC Irvine School of Law,¹⁷ University of New Mexico School of Law,¹⁸ and Washburn University School of Law¹⁹ each published law journals regarding the issues zombie foreclosures presented. As of 2017, MERS remained the transfer system for 28 million mortgages.²⁰

Code Enforcement issuing citations and fines to the vacated owner does not generally resolve the issue because if the property owner could not afford their mortgage payment, they are unlikely able to pay Code Enforcement fines, pay contractors to repair or remove the code violations, or pay an attorney to initiate unlawful detainer proceedings.

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Slumlords or criminally negligent property owners are also a significant source of difficult nuisance properties. One can look to the Ghost Ship Fire in Oakland as an example of what happens when a public agency is unable to effectively enforce code violations. In that case, despite repeated notices from the City of Oakland, the property owners failed to remediate or remove the violations. The property owners continued to let numerous people occupy the building, until December 2016, when 36 people were killed by a fire as a result of the unsafe building conditions.²¹ Despite the City's attempts to use common code enforcement procedures, the City of Oakland ultimately had to pay out $32.7 million dollars to the Ghost Ship victim's families.²²

Public agencies have tried using a variety of creative procedures to resolve the issues presented with difficult nuisance properties. In 2005, City of New London, Connecticut tried to use eminent domain. However, the City of New London had to engage in litigation all the way to the United States Supreme Court to obtain rights to the lot they wanted to revitalize.²³ In part because of this massive legal battle, planning, and use of city resources, even fifteen years after obtaining the lot, the lot remains vacant.²⁴ Similarly, if public agencies decide to demolish blighted properties, the legal processes associated with doing so pose a significant expense.²⁵ Other public agencies have tried to implement vacant property ordinances.²⁶ However, these ordinances give public agencies nothing more than the power to fine, which they already had through the common code enforcement procedures.

The most successful creative mechanism for dealing with difficult nuisance properties is receivership, a process codified in Health and...