rssLenders, Servicers Fight Anti-Blight and Property Laws
Monday, August 31, 2009 at 6:00 am
- 33 Comments
Flickr: respres
As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind by the mortgage crisis continues to heat up.
More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to take care of foreclosed and vacant properties under their control. The continuing punitive measures come as servicers already find themselves under fire for failing to complete more loan modifications under the Obama administration’s Making Home Affordable program – an effort that includes $75 billion in taxpayer money as incentives for the lending industry to rework loans. And it also comes as some realtors and lenders are mounting challenges to local anti-blight ordinances, and promoting the use of a mortgage database to track down servicers. Some housing advocates fear the industry will go beyond lobbying for the use of its mortgage system to push for getting rid of local vacant property laws altogether.
Illustration by: Matt Mahurin
The end result: Some of the same servicers the Obama administration is urging to complete more loan modifications still are walking away entirely from vandalized homes, or failing to fix broken windows, get rid of junked cars, clear trash, repair damaged roofs and gutters, or even demolish a condemned house, all of which can be violations of local housing codes. And housing courts keep hearing persistent arguments from servicers that they’re merely temporary custodians who can’t alienate investors by spending money to bring properties up to code.
“They may think it’s unfair, but the law provides that if you have ownership of a property, you take care of it,” said Cleveland Housing Court Judge Raymond Pianka, who regularly fines lenders $5,000 a day for properties that don’t comply with city codes. “There’s no provision to exempt corporations. I’m not going to treat them any differently than the individual property owners who come into my courtroom in wheelchairs and walkers.”
And while the lending industry contends its working more cooperatively than ever with local authorities, not everyone sees it that way.
“For every one vacant property owner who wants to work with the local government, there are five other property owners who are gaming the system,” said Joseph Schilling, a Virginia Tech urban affairs professor and co-founder of the National Vacant Properties Campaign. “My sense is the industry is also overwhelmed, almost as much as the code departments, and properties still fall through the cracks.”
Controversies over vacant properties are one sign of how the aftermath of the mortgage crisis may be as complicated to address as the initial waves of foreclosures themselves.
As TWI reported recently, the volume of REOs, or bank-owned foreclosures, is growing at an alarming rate, exacerbating the foreclosure crisis by sticking hard-hit neighborhoods with vacant and sometimes vandalized homes that drive down property values. REOs are foreclosed properties that lenders take back after they don’t sell at foreclosure auctions or sheriff’s sales. They keep the homes in inventory until they can be sold again.
RealtyTrac, an online foreclosure database, predicts that REOs will total 1.5 million this year, up from 160,000 just a few years ago. And a significant percentage of those REOs still haven’t been listed for sale. That means a glut of bank-owned foreclosed homes remains in limbo in many communities. Some banks hire property managers, but others let houses fall into disrepair. Neighborhoods in Cleveland, Detroit, and other cities with weaker housing markets have been stung by growing blight from REOs. In once-hot areas, like Atlanta, “zombie” subdivisions that were half-built and then abandoned mar the suburbs.
Speculators who buy REOs in bulk over the Internet, then fail to fix them up or abandoned them, have added to the crisis. And more loan defaults are expected, with 9 million foreclosures predicted by 2012, according to the Center for Responsible Lending. On top of all this, the bust in commercial real estate means communities also are increasingly stuck with empty big box retail stores, closed-down car dealerships, and vacant strip malls – more blight, and more problems.
For its part, however, the lending industry contends that it’s doing more than ever to solve the problem, stepping up to work more closely with state and local governments, and promoting a mortgage database that local officials can use to track down servicers and notify them of violations.
“There was a disconnect a few years ago, but we’re moving forward,” said Robert Klein, CEO of Safeguard Properties, a company that maintains vacant homes nationwide for mortgage servicers and banks. “There’s been tremendous progress made between code enforcement officers and lenders and servicers around the country. I think we’re all on the same page now.”
Empty houses with code violations resulting in stiff fines usually are the result of years of previous neglect, or cases in which servicers can’t be found to be notified of problems, he said. That situation is happening with far less frequency than in the past. “The $90,000 fines are an exception to the rule,” Klein said.
But in remarks to a recent Mortgage Bankers Association mortgage servicing conference that continue to be passed around on housing and community development listerves, Cary Sternberg of American Home Mortgage in Irving, Tex., went further. Sternberg, the firm’s senior vice president of Real Estate Owned (RE0) properties, contended that servicers increasingly are caught “in the cross hairs of disgruntled and cash-strapped local governments” looking to drum up revenue. The local governments often don’t understand the legal and other constraints under with servicers operate when it comes to REOs, he said.
“They need to look for ways to keep their cities going,” Sternberg said. “It’s a difficult problem to deal with and servicers like us are dealing with cities and municipalities all over.”
In Chula Vista, Calif., Realtors and lenders complained this summer that the city’s landmark anti-blight ordinance, which includes fined of up to $1,000 for lenders that ignore code violations, was driving away new business. Chula Vista’s 2007 ordinance became a national model, with more than 200 other communities adopting similar rules. The city has issued a total of $1.3 million in fines. Realtors asked the city to lessen fines and give firms more time to repair properties. The city is reviewing possible changes to the ordinance.
While servicers and code enforcers have made real progress sharing information through the mortgage database, the huge volume of REOs and continuing foreclosures continues to swamp the resources of everyone involved, Schilling said.
And in some places, problems run even deeper..
“From my experience, servicing of properties in the inner city, particularly in African-American neighborhoods is either non-existent or erratic,” said Kermit Lind, a Cleveland State University law professor who specializes in housing and foreclosure issues. And, he added, “servicers have testified under oath that they receive instructions to stop maintaining properties and walk away. Servicers have complained that they cannot afford to bring their properties up to code and still make money selling them, and that their investors will not allow them to comply with local laws.”
Lind had little sympathy for the plight of servicers, noting archly that “any reasonable person should see that compliance with local building and housing codes protecting the health, safety and welfare of taxpaying neighbors should be subordinated to the duties and responsibilities of servicing and pooling agreements concocted on Wall Street.”
But Christopher Oswald, a lobbyist with the Mortgage Bankers Association, which launched the mortgage database project, said lenders hit with huge fines only face additional obstacles getting foreclosed properties on the market and into the hands of new owners. Communities may once have needed to levy punitive fines to get the attention of servicers, but that problem has been addressed by the mortgage database, known as MERS, he said.
The industry database was expanded to allow its use by local governments. Enter an address, and up pops the name and contact information for a servicer or property management firm.
“We’re both after the same thing – to make sure the properties are maintained,” Oswald said.
The MBA introduced database in a handful of pilot cities more than a year ago, and the effort has been so successful the group plans to expand it nationally, he said.
Schilling said the industry outreach has been particularly successful in the West, in fast growth markets, and in some individual cities such Dayton, Ohio. But there are still problems elsewhere. At a recent housing conference in Kansas City, Schilling said he “got an earful” from housing and code officials throughout the state about how hard it was to find and work with mortgage servicers.
The mortgage database itself has drawbacks. It covers many, but not all, mortgage loans. It has no data at all on commercial real estate owners. And in some cases, a property contact shifts once a house moves from foreclosure to an REO. “There are gaps,” Schilling said.
An even bigger concern is that the lending industry will lobby state and local governments not just to use the database, but to also get rid of their local vacant property ordinances. Communities still need those regulations on the books as a powerful tool to make sure servicers and lenders take care of their properties, Schilling said.
The MBA isn’t actively lobbying against any anti-blight measures, Oswald said. But it makes sense for some towns to realize they may not need anti-blight ordinances if they can track down owners through the database instead. Communities can then avoid having to issue large fines that may delay transferring properties to new owners, he said.
“Anything standing in the way of getting servicers to put properties back on the market would be of concern to us, and should be of concern to local code officials too,” Oswald said.
Some local officials already have plenty of concerns about getting foreclosed homes back on track.
In Cleveland, Judge Pianka said some banks and servicers finally are catching on, showing up in his courtroom to answer to violations and repair properties. He’ll often forgive the big fines if a firm cleans up its property. (Court records show Pianka reduced a $30,000 fine for U.S. Bank to $3,000, after the bank brought a house into compliance.) But a recent court docket also gave a glimpse of continuing disputes, from the speculator from Dubai, who bought six properties, sight unseen, off Craigslist, and hasn’t fixed them up, to a real estate company that purchased REO worth only $1,000, and already has racked up $50,000 in fines.
Pianka recently spoke to a conference of property management contractors sponsored by Safeguard, showing photographs of graffiti-scarred, abandoned homes, and letting the lending industry know he’ll hold them accountable for their foreclosures. Klein, of Safeguard, said the judge’s talk was well-received – another small step in a continuing battle over cleaning up after the foreclosure mess.
33 Comments
Pingback posted August 31, 2009 @ 6:40 am
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Pingback posted August 31, 2009 @ 7:09 am
[...] news by Laura McGann What is an 80-10-10 mortgage loan? | billeater.com [...]
Pingback posted August 31, 2009 @ 9:37 am
[...] News Sources wrote an interesting post today onHere’s a quick excerptFlickr: respres As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind by the mortgage crisis continues to heat up. More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to t [...]
Pingback posted August 31, 2009 @ 9:39 am
[...] Random Feed wrote an interesting post today onHere’s a quick excerptFlickr: respres As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind by the mortgage crisis continues to heat up. More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to t [...]
Pingback posted August 31, 2009 @ 11:23 am
[...] See the rest here: The Washington Independent » Lenders, Servi&#… [...]
Pingback posted August 31, 2009 @ 1:28 pm
[...] news by Laura McGann Advice On UK Mortgage Options [...]
Pingback posted August 31, 2009 @ 2:27 pm
[...] little for the law and courts: the goal is business is to increase profits by any means necessary. Mary Kane in the Washington Independent: As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit [...]
Comment posted September 1, 2009 @ 2:49 am
Gosh, my sympathy cup seems to be dry at the moment. All I've got is naked venom. Am I to understand that the gougers who sold credit to anyone with that capacity to breathe air haven't got enough bailout money left to maintain all those lovely properties they reclaimed from the poor bastards who poured money into something they wound up losing entirely? And since they won't fix them up and drop the price to a reasonable level they can't sell them off fast enough to dodge the responsibilities that come of ownership? The same banks that clamped a lid on credit so tight that the money in their vaults hasn't seen light or air since last year?
…and they wonder why no one is taking them off their hands.
Let me be among the many to offer them a clue.
“The cure for drowning won't be found underwater.”
Comment posted September 1, 2009 @ 2:49 pm
MERS was not created to address this problem. MERS (Mortgage Electronic Registration System) was created by the industry many years ago to save themselves money, and since its creation, its uses have morphed completely. Instead of just keeping track of who is servicing a loan without having a paper trail, MERS is now being used to conduct foreclosures and keep the real players confidential. Foreclosure cases are brought in the name of MERS, and afterwards there have even been eviction cases by MERS. This was never intended when this system was allowed to be created. MBA is feeding MERS as their recently created solution because local gov'ts don't know who runs the property? This is hardly the problem. Servicers are unwilling to repair the property. They are sure willing to charge homeowners inspection fees monthly when a homeowner is in default because they are so concerned about the condition of the property. After the foreclosure then they don't care. And failing to repair might be a reason why it does not get sold (as opposed to stiff fines). Local gov'ts are rightly concerned about the mess the industry has created and are frustrated that the industry blames others for their responsibilities. Robert Doggett http://www.foreclosurebuzz.org
Comment posted September 1, 2009 @ 5:26 pm
The code compliances in most major ciites are ridiculous. They absolutley unfairly single out vacant properties. If the property is not vacant, it is not subject to this “code compliance”. So for the city to say it is treating the banks the same as a property owner occupying a property is complete Bull Shit!
In most cases they say take this old house and bring it up to brand new 2009 code. Example- House does not have a full basement-put one in. Improper rise run on the steps-trash half of the house and fix the rise run and head clearance. Don't have grounded outlets, properly vented plumbing, perfecly level floors, properly sized egress windows, (etc) – fix it. But you must hire only City licensed contractors.This is not economically feasable in most cases. Not to mention all of the government red tape to go with it.
In Minneapolis it will take at least 3 months for an inspector to do their Code Compliance inspection-meanwhile the property is getting even more trashed/vandalized. (That's after you post the $10,000 bond just to get on their list). Of course when you get goverment involved everthing becomes 10 times more expensive than it should be. They won't even let you change a light switch. According to the ordinance, only a city of Mpls licensed electrician can install the switch ($250 versus .99 cents) This kind of crap adds up quickly.
As for some lenders refusing to do work in African American neighborhoods, I completely understand ( Sorry, I am not going to be politically correct here!). We bought one there and have constantly had to deal with the copper theives, broken windows, graffitti, and genereal vandilism as soon as the home is repaired. So what does the city do? Can you say another code compliance and $10,000 bond?!?!
I think I'll buy in a gentrified suburb next time. No code compliance, no animalistic behavior from the neighbors, and about 1000 % less stress!
Comment posted September 1, 2009 @ 6:34 pm
The key is not to give them any slack on the fines, but to increase the fines to confiscatory levels so the servicers will be forced to sell the properties for whatever the market will handle or wind up with nothing.
I also can't wait for the first state that requires properties with said fines against them be sold through a reverse auction whether the servicer/banker wants to do it or not. Also, the games the servicers play where they get the foreclosures through court but cancel the sheriff sale should end…if they don't go through with the auction then the property reverts to the government and the loss (at least for banks) must be reported then and there. Ouch!
Of course, the landing industry will buy off enough legislators to keep that from happening. But there's always states like California with its initiative process that can pass such a reform.
Comment posted September 1, 2009 @ 9:16 pm
Code compliance varies from city to city, but it sounds like you live in code Hell! My sympathies and condolences.
In Michigan , particularly my area, it is surprisingly simple by comparison.
Remember that the problem is national though, not just subject to local rules, and in many places (including hereabouts) they hold occupied properties to the rules even MORE fiercely than vacant properties (because the local realtors and banks are given a little extra leeway by local enforcement in the interest of fostering good relations and healthy business).
So for many of us, watching banks get handed a black eye for failing to follow the rules that rest of us are held to is a sweet sweet reward during a very rough time.
(PS: African or non-African, ANY lower income neighborhood can be tough to own property in. We get a lot of the same problems you mentioned, largely because our area has a high level of methamphetamine addiction/abuse that drives people out of the rural areas and into cities. White or black is irrelevant…the problems are almost universal depending on the neighborhood. Adds a whole new ugly dimension to the rental process too. Just finding good people who need a home is tougher and tougher every day.)
Peace!
Comment posted September 2, 2009 @ 9:01 am
If anyone has had any luck with any of these companies, could you please post it for the ones that cannot find one to work with you. We've almost lost once and just got a second chance that want last long so I need to get something done now, so if anyone knows the right number to call, i am sure a lot of people that hasn't found them would appreciate it but check out http://www.obamamortgagerelief.org/
Pingback posted September 2, 2009 @ 10:15 am
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Comment posted September 3, 2009 @ 7:40 pm
Sorry…not racist, since people's heritage means nothing to me. I am a 'classist' though, and when you live in a city where most of the drug crime is fueled by rural white people on meth, you learn that crime has no color…but it does have an income/education gap.
Most of the people who are making it hard to rent or be a renter are low income, low education and have drug/alchohol problems. It isn't a black or white issue…its a junkie P.O.S. or non-junkie P.O.S. issue.
Comment posted September 3, 2009 @ 7:41 pm
The Center for Responsible Lending would like nothing more than to pressure banks to relinquish these REOs because their affiliates (such as the Self Help Credit Union–founded by CRL CEO Martin Eaks–and World Savings/Wachovia–which founded the CRL) are waiting in the wings to snatch them up at steeply discounted rates. What then will replace these condemned properties? Not with equivalent affordable housing, since the SHCU, Wachovia, and World Savings continue to keep credit so tight that the market for affordable housing is nonexistent. What we have here is a land-grab dressed up in a bunch of shallow, feel-good activism.
Pingback posted September 3, 2009 @ 9:20 pm
[...] Article here. [...]
Pingback posted September 4, 2009 @ 5:36 am
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Pingback posted September 5, 2009 @ 6:16 am
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Pingback posted September 5, 2009 @ 9:20 pm
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Pingback posted September 6, 2009 @ 2:44 am
[...] Lenders, Servicers Fight Anti-Blight and Property Laws – The Washington Independent.comAs bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind [...]
Comment posted September 6, 2009 @ 1:47 am
Sham Foreclosures & Homelessness, IRS frauds, Loan Modifications
=================================================================
For certain mortgage companies and lawyers, loan modification interferes with its SHAM FORECLOSURES, real estate extortion, flipping frauds, and false IRS form1099-A operations. The schemes also fosters BLIGHTED neighborhoods. (*1099-A's enable mortgage companies to receive just or unjust tax advantages). News reports about courtroom judges who are dismissing foreclosure cases (filed purportedly on behalf of foreclosure plaintiffs) because of “lack of proof of owning the note” is not always a coincidence; too many lawyers are deliberately filing false foreclosure cases, but they have been flying under the radar.
When attorneys intentionally file false foreclosures, they often affix fees in excess of “Acceleration Clauses.” As such, it becomes even harder for people to re-pay any arrears! If property owners sue for “Unfair Debt Collection Practices,” lawyers make more even $$$$ through litigation –which Wall Street Investors incur the legal tab. Even worse, those property owners become unlawfully evicted despite that they never lawfully lost ownership of their properties because of the fact that the property was in the first place fraudulently seized. Some collector attorneys even file in Bankruptcy Court falsified motions to “Lift Stay” pleadings to accomplish SIMULATED AUCTIONS of illegally foreclosed properties. All of this res ipsa loquitur information is in plain view of anyone who bothered to look at IRS form 1099-A's and court various pleadings! Judges who are putting the brakes on fatally defective foreclosure filings are not the only ones who should be looking at what is really going on!!. . .For examples and proof of Wells Fargo, Lehman Brothers activity, see:
http://www.lawgrace.org/2008/08/08/my-august-8-…
http://www.lawgrace.org/2008/09/14/lehman-broth…
A simple investigation of IRS form 1099-A's filed by mortgage companies, will expose various aspects of silent White Collar collusion involving real estate and foreclosure frauds which have been carried out for years –likely, another S&L mess! PLEASE help raise awareness. Hopefully, Congress and State Attorney Generals will launch massive probes.
Pingback posted September 12, 2009 @ 5:50 am
[...] Laura McGann wrote an interesting post today onThe Washington Independent » Lenders, Servicers Fight Anti-Blight <b>…</b>Here’s a quick excerpt [...]
Pingback posted September 12, 2009 @ 5:57 am
[...] Laura McGann wrote an interesting post today onThe Washington Independent » <b>Lenders</b>, Servicers Fight Anti-Blight <b>…</b>Here’s a quick excerpt [...]
Pingback posted September 16, 2009 @ 11:01 pm
[...] Lenders, Servicers Fight Anti-Blight and Property LawsFlickr: respres As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight o [...]
Pingback posted September 16, 2009 @ 11:03 pm
[...] More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to take care of foreclosed and vacant properties under their control. The continuing punitive measures come as servicers already find themselves under fire for failing to complete more loan modifications under the Obama Read more at http://washingtonindependent.com/57132/lenders-servicers-fight-anti-blight-and-property-laws [...]
Pingback posted March 25, 2010 @ 4:57 pm
[...] maintain foreclosed property, and fining them if they don’t, is a strong way to decrease the blight that the foreclosure crisis has brought to many communities. These laws also help cash-strapped municipalities that have taken on the burden of maintaining [...]
Pingback posted April 11, 2010 @ 10:53 am
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Comment posted July 30, 2010 @ 12:41 pm
In Minneapolis it will take at least 3 months for an inspector to do their Code Compliance inspection-meanwhile the property is getting even more trashed/vandalized. (That's after you post the $10,000 bond just to get on their list). Of course when you get goverment involved everthing becomes 10 times more expensive than it should be. They won't even let you change a light switch. According to the ordinance, only a city of Mpls licensed electrician can install the switch ($250 versus .99 cents) This kind of crap adds up quickly.
Pingback posted December 1, 2010 @ 6:51 am
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Comment posted July 11, 2011 @ 3:54 pm
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