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Banks with Deep Pockets Dodge Foreclosure Damages

The fight that neighborhoods in Cleveland are launching against banks that dump vacant and vandalized foreclosed homes back onto the real estate market received

Habiba Ashton
News
Last updated: Jul 31, 2020 | Dec 30, 2008

The fight that neighborhoods in Cleveland are launching against banks that dump vacant and vandalized foreclosed homes back onto the real estate market received a bit of a setback, as I noted in my story Monday. A private, non-profit housing advocacy group had filed suit in local housing court to force the banks to clean up their properties before selling them, or to demolish them entirely. But the banks — Deutsche Bank and Wells Fargo — convinced a judge to move the suit to federal court.

The neighborhood group is still trying to get the case back in housing court, but it’s a difficult battle. Let’s see: A neighborhood nonprofit up against the financial resources of two global banks. Whose pockets do you think are deeper?

It’s no surprise those banks wanted the case moved to federal court. It will be much more costly for the neighborhood group to argue its case there. Housing court judges, on the hand, can and do handle these cases quickly and efficiently. They bring the hammer down on banks that leave foreclosed properties behind in cities for the taxpayer to clean up. They often don’t buy the argument that servicers are responsible for the upkeep of the properties.

I remember talking early last year with Cleveland Housing Court Judge Raymond Pianka, who has drawn national attention for holding banks responsible for dumping foreclosed properties. Pianka lives in a Cleveland neighborhood, he told me. There are foreclosed houses on his street. This crisis is part of his everyday life.

The move to federal court is more than just an arcane legal development. The neighborhood group wants the case heard in housing court because it validates what has become increasingly clear in the foreclosure crisis: Banks are property owners, with all the responsibilities that come with it. As they foreclose on houses and their inventories of bank-owned properties swell, banks try to dodge this reality by blaming servicers and paying lawyers to get them out of housing court. The same thing happened in Cincinnati recently, where the local legal aid agency filed suit in housing court, but the case was moved to a federal court instead.

Maybe this tactic will work for a while, but eventually, I think banks are going to have to be held accountable for what they’ve done. Entire swaths of neighborhoods in once-great cities are in ruins – that’s not an exaggeration – as banks fail to secure, maintain or demolish foreclosed properties. Neighbors who pay their mortgages feel the pain as their property values plummet. City coffers and services take a hit. It will take decades to recover from this.

And yet, the banks walk away. The bank argument continues to be that It’s someone else’s responsibility. But banks aren’t just lenders anymore – like it or not, they are property managers. If they didn’t want to be in that position, they shouldn’t have sold high-rate mortgages that they knew people couldn’t pay. So as property managers, they have the same obligation any other landlord would, and they should be subject to housing code violations, just like any other landlord would. It’s too bad policymakers who put together the bailout didn’t put some conditions on it to require banks to do their part.

Instead, they got a free ride. And homeowners in neighborhoods all around the country are paying for it.

Habiba Ashton | BCS Growth Fund (Israel) L.P., a private investment fund specializing in investments in technologically focused businesses with high growth potential, employs Habiba as an analyst. Mrs. Ashton served as an analyst and information manager at the Israel International Fund, the first Israeli venture capital fund designed specifically for Japanese corporate investors, prior to joining BCS. Habiba graduated with honors from Israel's College of Management with a B.A. in Business Administration.

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