Who is to blame when foreclosed homes decay home values and pose health hazards?
“It’s not the fact that the roof needs to be fixed or the mailbox is crooked, its broken windows, a swampy pool and unruly, overgrown lawn and weeds that scream that the home is abandoned,” says Davie, Florida resident Mary Thomas. “High, uncut grass harbors rats and snakes…that slink into my yard and possibly my home.”
Ten years ago homeowners like Mary Thomas were few and far between. Occasionally, residents would live next door to a foreclosed home that fell down the black hole of the “land of forgotten homes” but today this scenario is more commonplace.
Bank pipelines are clogged with foreclosed homes, leaving many unable to keep up with the ongoing maintenance required to run a home. According to the Sun-Sentinel banks and cities shift blame back and forth as to who should be responsible for maintenance.
South Florida, one of the housing crash’s “ground zeros” currently has 10,300 property code violations lodged against banks in 10 South Florida cities since 2007, according to a recent Sun-Sentinel investigation. Some of the most commonplace code violators include JPMorgan Chase, Bank of America, Wells Fargo, CitiMortgage, and BNY Mellon.
Deutsche Bank is another frequent flier, especially in South Florida. Multiple South Florida officials have referred to Deutsche Bank as being, "one of the irresponsible banks" and "one of the banks we've had many problems with."
Deutsche Bank appears to be unphased by these comments as John T. Gallagher, a New York-based spokesman for Deutsche Bank told the Sun-Sentinel, "The bank itself has no economic interest or ownership stake in the properties” and that the bank is only a trustee with maintenance being the problem of “loan servicers.”
Homes fall through the cracks because municipalities say its hands are tied due to the bank owning the title, whereas banks contend that home maintenance should not be the job of a financial institution, claiming that it’s someone else’s problem.
This attitude leaves little for surrounding homeowners to do to change the situation. Some banks remain elusive, located in other states or countries and even fines and fees seem to do very little to make changes.
How Bad Can It Get?
With home values possibly hitting bottom, how concerned should homeowners be if the next-door neighbor moves out in the middle of the night?
Three years ago for one South Florida family an abandoned home became a parent’s worst nightmare. As the family moved into their new home, their toddler wandered into the backyard of the abandoned home next door and drowned in the pool. The child’s mother told investigators that the home next door was in such disarray there was no way to determine if a pool was in the middle of the “garbage.”
In another instance an electrical outlet in the front of a home became infested with bees that had to be removed. Another home’s pool became so filthy the health inspector suspected that poisonous toads were making a home poolside.
Because no one is checking on the status of these properties, some have become home base for squatters, looters and it isn’t uncommon for vandalism to occur including house fires. Some homes have become so neglected, that the city must tear down the structure completely.
Crime also finds its way to neighborhoods with abandoned homes. Homeowner LaToya Gibson is fearful in her own Ft. Lauderdale home after experiencing a break in after dealing with the revolving door of squatters in the neighboring abandoned property. "I went and purchased a gun," she said. "Unless it's next door to their house, I don't think they care." Deutsche Bank owns the home next to Gibson.
Credit Unions Make For Better Neighbors
Banks could learn a thing or two about how to properly maintain a foreclosed property from a credit union. Because most credit unions are locally-run, financial institutions with roots in the community, the majority of credit union owned properties are better maintained until it is sold.
South Florida-based Tropical Financial Credit Union ($724 million, Miramar, FL) has a systematic approach to how it handles a foreclosed property.
“Our credit union inspects properties that are in default every 30 days,” says Doug Leever, Mortgage Sales Manager. “Most of the defaulting loans are in some stage of foreclosure, this is why it is important to inspect the property. The reports usually contained the condition of the property and whether it is vacant, occupied or abandoned, pictures of the properties are also obtained when the condition of the property is not in good condition. The credit union will then take steps to secure abandoned properties and maintained them as much as possible.”
“With respect to foreclosed properties where the credit union is the owner, the properties are maintained by the Realtors that are remarketing the property,” Leever explains. “Most of our REO properties are sold within four months after we acquire them. REO properties are kept in clean condition as much as possible for quick sales.”
Like Tropical Financial, Wright-Patt Credit Union ($2.4 billion, Fairborn, OH) turns properties over to Realtors for property management. “If we foreclose and take ownership of a property, we use a couple local Realtors to help us manage the property,” says Tim Mislansky SVP / Chief Lending Officer. “They manage clean up and maintenance and list the property for sale. Our average is about eight months, but we’ve moved them within 30 days and still have one that we’ve had for three years.”
Unlike South Florida, Mislansky hasn’t noticed numerous neighborhoods filled with structural eyesores. “We haven’t noticed this to be a significant issue in our area, but we do notice it from time to time,” he says. “The local newspaper has painted the big banks as the culprit, but I don’t know the accuracy of it. I think the issue is twofold. One issue is that the lender doesn’t necessarily want the property back because of the back property taxes they become liable for. Another is that when people abandon the homes they are often in a state of disarray.”
Mislansky say that WPCU has purposely decided against allowing this to happen with its homes. “As a community based financial institution we owe it to the community to maintain these properties and maintain property values as much as possible,” he states. He advises homeowners living near abandoned properties to report nuisance properties to a local government office. “Some will mow grass on these properties and address minor issues,” he says.
Credit Unions Intervene Before Foreclosure
Mislansky says that specific steps are taken in order to avoid foreclosure in the first place. “We work with a local housing agency – the HomeOwnership Center of Greater Dayton,” he explains. “We refer members to HOC who are past due. The agency provides counseling and options, helps the borrower apply for grant funds such as the Ohio Hardest Hit Fund or puts together a budget related to a modification request. These requests are reviewed by our staff for approval.”
He adds that the credit union also works with GreenPath to provide credit counseling services to members in need. GreenPath Debt Solutions is a non-profit debt solutions organization that provides credit counseling services free of charge.
“And finally, our collections staff works to help keep people in their homes. In a member has the willingness to work to stay in their home, is proactive in working with us, we will exhaust every opportunity before we foreclose.”
Mislansky describes a situation where the credit union took extra steps to avoid foreclosure and ended up saving a member’s home.
“Our member had been with the credit union for over 10 years and their first mortgage was originated in 2002,” he recalls. “They also had a second mortgage. In 2011, they both had a significant reduction in hours worked as their employers scaled back considerably. They fell behind on their mortgage and were not able to catch up.”
Mislansky says that the loan reached the stage where the foreclosure process would normally start, but a diligent manager realized that they probably had some equity in the home since they’d been paying the loan for almost 10 years. “She reached out to the member and was able to get a better understanding of the issues the member was having.”
“Our manager reviewed the details and believed we could roll their first and second mortgage into a new mortgage. While the LTV was just above 103%, we were able to get a monthly payment the member could afford and re-write the new mortgage into just a 10-year term. The credit union greatly reduced its risk of foreclosure and the member got to keep their home.”
Whether you are in the verge of foreclosure or living next to an abandoned home, find a credit union to save your property.