The 1,300-square-foot home has sat largely vacant since falling into foreclosure more than two years ago, racking up $55,372 in code violations while the case lingers in court. A tattered sign out front informs visitors that BAC Field Services, a subsidiary of the megabank, “intends to protect this property from deterioration.”
“They’re doing a great job,” Minkel said sarcastically.
This slice of central Florida has been battered by the foreclosure crisis. But thousands of abandoned and vacant properties, many in legal limbo, are plaguing neighborhoods across the country. The result has weighed down already falling home values, attracted crime and vagrancy, and forced cash-strapped municipalities to tap dwindling budgets to care for decaying houses.
With more foreclosures looming, some state and local officials are pushing the financial industry to do more to repair the damage on Main Street, which is still reeling from high unemployment and a housing crisis that has hampered the national economic recovery.
In Los Angeles, officials are suing Deutsche Bank, calling it the city’s biggest slumlord. In Illinois, some legislators have pushed for a bill that would allow cities to enforce ordinances on vacant properties against banks that are foreclosing on homes, even if they haven’t taken ownership.
In Maryland, a lawmaker from hard-hit Prince George’s County wants banks and lenders to face stiff fines for failing to maintain properties to local standards. Hundreds of cities have passed or are considering ordinances requiring firms to register vacant properties so officials know whom to pursue when homes fall into disrepair.
“I’m seeing almost every week another community doing something to go after these properties,” said Frank S. Alexander, a law professor at Emory University who has advised municipalities on how to face off with banks. “The local governments are realizing that they are the ones that are getting stuck with all the cost. It’s killing them.”
A central problem is one of assigning responsibility. In many cases, homeowners vanish before the bank that initiated the foreclosure completes the process and legally takes ownership. That leaves local officials to either pursue absent borrowers with no ability to pay or to wrestle with banks that have limited authority to maintain the property.
Even when firms do seize a property, the complex system that fueled the housing boom can cause confusion during the bust. Millions of mortgages were pooled into massive securities that were then sold to investors and managed by trusts. In turn, mortgage servicers were hired to collect the mortgage payments and foreclose on behalf of investors when loans went bad. That structure has made it difficult and time-consuming for authorities to determine whom to pursue.
‘A shared interest’
The system allows people to “pass the buck to someone else,” said Alan Mallach, a senior fellow at the Brookings Institution. “Nobody is willing to take responsibility.”
Banking officials insist that they have no incentive to let properties sit vacant and that doing so would hurt their reputation and bottom line. They say they also have been overwhelmed and frustrated by the crisis. They say that in many states, drawn-out foreclosure timelines often mean unoccupied homes deteriorate while awaiting a final judgment. And given a backlog of nearly a million foreclosures, getting empty homes off the market has been tough.
“There’s a shared interest” between financial firms and local officials, said David Stephens, president of the Mortgage Bankers Association. “A foreclosure costs nothing but money . . . for everyone involved — communities and neighborhoods, lenders and investors, and in many cases, taxpayers.”
Robert Klein, president of Safeguard Properties, a private firm that works with banks and servicers across the nation to maintain foreclosures, says the industry has done an admirable job, given the scale of the downturn.
“I’m not going to sit here and put a halo over the banks’ heads,” he said. “But for every property you show me that has broken windows and doors, I’ll show you 20 that are being properly maintained.”
Whatever the case, the result has been maddening for some officials.
“It’s really difficult for local officials to stand around twiddling their thumbs while their tax base and their constituencies are taking such a beating,” said Kermit Lind, a Cleveland State University law professor who worked on that city’s public nuisance lawsuits against multiple banks in 2008.
‘They are a slumlord’
The Los Angeles suit against Deutsche Bank, one of the country’s largest trustees of mortgage-backed securities, seeks hundreds of millions of dollars in penalties. It details problems at 166 properties, accusing the bank of illegally forcing out tenants, allowing others to live in deplorable conditions, and letting scores of empty homes devolve into havens for gang members, squatters and drug dealers.
“They are a slumlord. The facts speak for themselves,” said L.A. city attorney Carmen Trutanich, who said that other cities have contacted him about filing similar suits. “If any bank is going to take solace out of the fact that we hit Deutsche and not them, don’t be so sure you’re not next.”
Deustche officials insist the city is suing the wrong party. Loan servicers — not Deutsche, which is the trustee for the properties — are responsible for maintaining the properties, said spokesman John Gallagher.
In Ohio, state Rep. Dennis D. Murray (D) has introduced legislation that would require banks to complete foreclosures once filed and to hold a sheriff’s sale within a set time period or risk forfeiting the property. “The idea was, if you’re not going to do anything with it after you get your foreclosure, why are you keeping it?” Murray said.
A lingering problem
Not every effort has been confrontational.
In Illinois and Wisconsin, major banks have teamed with local officials to demolish some abandoned homes and rehabilitate others. In addition, Safeguard and the Mortgage Bankers Association have created databases to help officials track down and communicate with banks and servicers.
Still, with millions of potential foreclosures in the pipeline, vacant and abandoned homes are likely to remain a problem “that affects every city, every community in the country,” said Alexander, the Emory professor.
In Hillsborough County, taxable property values have fallen one-third since 2007. As in other communities, that has prompted steep cuts. The number of code enforcement officers has been trimmed by nearly half, and the money available to clean up deteriorating properties has fallen by two-thirds to $15,000. The department has teamed with the sheriff’s office to put people required to perform community service at work repairing abandoned homes.
Riding local streets in his white pickup, Minkel lamented that taxpayers are often left “babysitting” eyesores that belong to others.
“It’s really not fair,” he said. “You just can’t leave neighborhoods like this.”