In the prior month, the Los Angeles city attorney’s office filed a complaint accusing a major bank for failing to maintain more than 170 foreclosed properties in the city. The attorney’s office claimed that the properties were blighting neighborhoods, decreasing property values and encouraging crimes in the area. This is a scene that has been played out around the country as activists take banks to courts claiming that their communities have deteriorated in the wake of neglected foreclosures.
At the height of foreclosures, there were over 1 million homes owned by financial lenders. According to RealtyTrac, there are now about 620,000 and about 24% of them have been on the market for two years or more. It is further estimated that 11% of these have been on the market for over three years. The longer they these homes stay in REO status; they face the risk of falling into disrepair and many city governments who are themselves in fiscal crisis are unable to force banks to maintain the properties as they do not have the resources.
Some states like New Jersey are attempting to pass laws that empower cities to force banks to take responsibility for foreclosed properties, but there is doubt that the cities would have the resources to enforce these laws. In states like Arizona, where there has been success in getting banks to cooperate, there are more than 50 inspectors who conduct about 16,000 inspections a month to impose and enforce fines on blighted bank-owned properties In the city of Phoenix. For banks that fail to respond, court is often the next step and this has ensured that about 90 percent of such properties have been repaired and maintained. Some other States like Florida have not been so successful despite an effort to curb this problem; banks have received thousands of citations for health and safety code violations in properties they own. In ten cities there have been 10,300 such code violations imposed against banks since 2007, according to a recent investigation by the South Florida Sun-Sentinel, but even where cities fine banks and then place liens on properties, little maintenance is done. In states like Illinois where legal efforts were underway to make lenders responsible for houses they did not even own yet, the Federal government took steps to defend their responsibilities and argued that they cannot be liable for something they do not own. Fair point.
As communities grapple with how to fix this issue, there is fear that if this problem continues, homes that have already faced huge declines in value after the housing crisis will continue to see drops in their home values. It is hard to argue that point.
Michael Hobbs, PahRoo Appraisal & Consultancy
Twitter @Pahroo
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