Banks Starting to Walk Away on Foreclosures
By SUSAN SAULNY

SOUTH BEND, Ind. — Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

For older industrial cities like South Bend, hard times in the mortgage market began before the recent national downturn, as did the problem of bank walkaways. In the case of Ms. James, a home health care administrator, the foreclosure proceedings began in the summer of 2007, when she could not keep up with the adjustable rate on her mortgage.

In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were “a rare occurrence two to three years ago.”

“We’re seeing them dumped more and more at the moment,” she said.

Experts suggest the bank walkaways are most visible in states where foreclosures are processed through the courts and therefore tend to be more transparent. Other states, like Indiana and New York, have court-mandated foreclosures, but roughly half of the states allow foreclosures to proceed without court intervention, making it difficult to accurately count the number of bank walkaways in recent months.

The soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country.

“Oftentimes when the foreclosure starts out, it’s a viable property,” Mr. Rothenberg said, “but by the time it gets to a sheriff’s sale, it might not have enough value to justify further expense. We’ve always had cases where property was vandalized or lost value, but they were rare compared to these times.”

The problem seems most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 percent to 50 percent of their investment on every foreclosure.

Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware.

“The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can,” Mr. Cecala said. “It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

In South Bend, boarded-up houses for whom no one has stepped forward are dotting the landscape, adding a fresh layer of blight to communities that were already scarred from the area’s industrial decline.

The city is hoping to create a new type of legal mediation process that would bring together the homeowners and the mortgage holders to settle their disputes while allowing the owners to remain in the home — considered crucial to any stabilization effort.

“I’d say in the last three or four months, we’ve seen dozens of these cases,” said Chuck Leone, the South Bend city attorney. “We see it one of two ways. One is that the bank will simply dismiss the foreclosure complaint. The other is that the mortgage holder will follow through and take a judgment of foreclosure, but then not schedule the property for sheriff’s sale.”

In Ms. James’s case, it has been impossible to determine who canceled the sheriff’s sale, since her last mortgage holder went out of business. Even the city clerk’s records did not provide an answer.

“Nobody has any idea who owns what or who’s responsible,” said Judy Fox, Ms. James’s lawyer at the Notre Dame Legal Aid Clinic. “It’s a very common story.”

Mayor Stephen J. Luecke of South Bend added: “It’s just a crime the way it puts people in limbo. They first off have gone through the grief of losing their house, then they move out and find out that they still own it and have responsibility for it.”

In Jacksonville, Fla., Sylvester Kimbrough Jr. found himself caught in the limbo between foreclosure and ownership last year, 10 years into his 30-year mortgage on a $42,000 two-bedroom house.

Mr. Kimbrough, 56, a former driver for a car dealership who is now unemployed, had already moved out when he learned that the foreclosure had been stopped.

“That move really almost destroyed us,” Mr. Kimbrough said. “It was all for nothing.”

Off-the-cuff suggestion prompts discussion on what to do with abandoned neighborhoods in Flint
Posted by Kristin Longley | The Flint Journal March 17, 2009 07:45AM
Ryan Garza | The Flint Journal

FLINT, Michigan -- Look in any direction from Bianca Bates' north Flint home, and you'll see graffiti-covered siding, boarded-up windows and overgrown lots.

About half of the homes on her block are burned out or vacant magnets for drug dealers and squatters. It isn't where she thought she'd end up, but it's all she can afford to rent.

"It's a dangerous place to live," said Bates, 21, who lives on East Russell Avenue. "Everywhere you look, these houses are empty around here."

Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.

Temporary Mayor Michael Brown made the off-the-cuff suggestion Friday in response to a question at a Rotary Club of Flint luncheon about the thousands of empty houses in Flint.

Brown said that as more people abandon homes, eating away at the city's tax base and creating more blight, the city might need to examine "shutting down quadrants of the city where we (wouldn't) provide services."

He did not define what that could mean -- bulldozing abandoned areas, simply leaving the vacant homes to rot or some other idea entirely.

On Monday, a city spokesman downplayed Brown's comments.

Bob Campbell, Brown's spokesman, said the acting mayor was speaking hypothetically about a worst-case scenario, "not something that would be laid out in the next six months" while he's in office.

But City Council President Jim Ananich said the idea has been on his radar for years.

The city is getting smaller and should downsize its services accordingly by asking people to leave sparsely populated areas, he said.

"It's going to happen whether we like it or not," he said. "We'd have to be creative about it, but it's something worth looking into. We're not there yet, but it could definitely happen."

Flint resident Derrick Young, 39, doesn't think people in his West Austin Avenue neighborhood would bow too easily to such a *********

"We (are) all family over here," he said. "We all stick together."

Even in neighborhoods where more homes are vacant than occupied, Young, who rents, said the city shouldn't interfere.

"They shouldn't be so hard on people, just because they live in a bad area," he said. "They should find more ways to fix it up and rent it out."

The concept of "shrinking cities" isn't new to urban areas similar to Flint.

Last year, the city of Youngstown, Ohio, proposed incentives to encourage people to move out of nearly empty blocks and relocate to more populated areas closer to the heart of the city. Some people were offered upward of $50,000, according to news reports.

The idea was to shut down entire streets and bulldoze abandoned properties so the city could discontinue services such as police patrols and street lighting, according to a CNN report.

The problem came, understandably so, when officials asked residents to move.

Abandoned and foreclosed homes are on top of the list of major challenges facing Michigan cities, said Arnold Weinfeld, director of public policy and federal affairs with the Michigan Municipal League. The organization surveyed several cities that cited declining property taxes as the No. 1 problem, he said.

In the past three years or so, cities in Michigan have lost a combined $147 million in property taxes, he said.

"That's bound to have an impact on local services," he said. "There's no question it's an issue. Each community is going to address it differently."

Brown took over last month after former Mayor Don Williamson resigned facing a recall election. His replacement will be elected Aug. 4.

Brown is focused on economic development as a key to revitalizing Flint, Campbell said. The city also has the advantage of having the Genesee County Land Bank, he said.

"Cities such as Flint might be forced to make difficult choices at some point," Campbell said. "However, what he's all about is having an economic development plan in place so we don't have to seriously consider that as an option."

Bates said the idea might make some people happier, but she doesn't see how it would help the city.

But her roommate, Gabrielle Daniels, said it sounds like a good idea.

"Let's get these kids out of these bad areas," she said. "Get them out of drug houses and into safer neighborhoods."

America's Emptiest Cities
Zack O'Malley Greenburg, 02.12.09, 11:20 AM ET

Call it a modern-day tale of two cities.

For decades, Las Vegas, ripe with new construction and economic development, burgeoned into a shimmering urban carnival. Detroit, once the fulcrum of American industry, sagged and rusted under its own weight.

These days, it's the worst of times for both.

Las Vegas edged Detroit for the title of America's most abandoned city. Atlanta came in third, followed by Greensboro, N.C., and Dayton, Ohio. Our rankings, a combination of rental and homeowner vacancy rates for the 75 largest metropolitan statistical areas in the country, are based on fourth-quarter data released Feb. 3 by the Census Bureau. Each was ranked on rental vacancies and housing vacancies; the final ranking is an average of the two.
In Depth: America's Emptiest Cities

Cities like Detroit and Dayton are casualties of America's lengthy industrial decline. Others, like Las Vegas and Orlando, are mostly victims of the recent housing bust. Boston and New York are among the lone bright spots, while Honolulu is the nation's best with a vacancy rate of 5.8% for homes and a scant 0.5% for rentals.

Still, empty neighborhoods are becoming an increasingly daunting problem across the country. The national rental vacancy rate now stands at 10.1%, up from 9.6% a year ago; homeowner vacancy has edged up from 2.8% to 2.9%. Richmond, Va.'s rental vacancy rate of 23.7% is the worst in America, while Orlando's 7.4% rate is lousiest on the homeowner side. Detroit and Las Vegas are among the worst offenders by both measures--the Motor City sports vacancy rates of 19.9% for rentals and 4% for homes; Sin City has rates of 16% and 4.7%, respectively.

"It's a mess," says Vegas developer Laurence Hallier. "Right now, things are just frozen. Everybody's scared."

Hallier, 40, knows from experience. His $600 million Panorama Towers complex was a tremendous success at its inception three years ago. The first of his four planned residential skyscrapers sold out in six months; the second, which opened in 2007, sold out in 12 weeks. As the third tower neared completion last fall, Hallier had sold 92% of its units. Then the recession hit, and only half the units ended up closing. Hallier says it will take years to break even, and plans for the fourth tower have been delayed indefinitely.

There are others who've made--and lost--far worse gambles on Vegas property. In 2007, Israeli billionaire Yitzhak Tshuva and partner Nochi Dankner paid $1.25 billion to buy a 34.5-acre site on the Strip, with plans to build an $8 billion mega-casino modeled after New York's Plaza Hotel. By November, the value of the lot had plummeted to $650 million--half what they paid for it. Groundbreaking on the casino has been pushed back to 2010, and today, the land may be worth less than the $625 million Tshuva and Dankner borrowed to buy it. ¡Que pipitazos, increible!

The Plaza debacle is emblematic of the problems afflicting millions of property owners in Vegas and around the country--and can explain, in large part, the origins of America's housing crisis.

As real estate prices skyrocketed during the boom, consumers took out massive loans to buy homes, assuming values would continue to rise. Instead they took a nosedive, especially in places like Las Vegas, Florida and Phoenix, where the housing boom had created excess inventory and so-called "bad loans" were rampant. Many homeowners suddenly found themselves with properties worth far less than the mortgages they'd taken out. In the worst cases, banks foreclosed, leaving people without homes--and with more debt than they'd had to begin with.

The situation in places like Las Vegas is bad enough, but Detroit's problems run much deeper. Though its vacancy rates are marginally better than Sin City's, Motown has been on the empty side for decades. An industrial boomtown during the first half of the 20th century, Detroit's population swelled from 285,000 in 1900 to 990,000 in 1920, reaching a peak of 1.8 million in 1950.

But starting in the 1960s, Detroit began a precipitous decline. Detroit's population is now 900,000--half what it was in the middle of the century--and many of its neighborhoods languish in varying states of decay. Most scholars blame rapid suburbanization, outsourcing of manufacturing jobs, and federal programs they say exacerbated the situation by creating a culture of joblessness and dependency.

Yet after more than half a century, countless scholars, politicians, community organizers developers and nonprofit workers have been unable to come up with a solution to fix Detroit.

Will Las Vegas eventually suffer the same fate?

"I don't think Vegas is overbuilt," says Hallier. "Despite what everybody says, Vegas still has 2 million people."

Time will tell if this sort of optimism is warranted. Cynics who've witnessed Detroit's decline might liken Hallier's opinions to another Dickens oeuvre: Great Expectations.

Foreclosed Homes Bring Dangers To Neighbors
1 In 14 Nevada Homes Receiving Foreclosure Notices

POSTED: 3:42 pm PST January 28, 2009
UPDATED: 10:24 pm PST January 28, 2009
LAS VEGAS -- If it feels like there's a foreclosed home on every block in the Valley -- you might be on to something. New numbers from Realty-Trac, a foreclosure listing firm, show Nevada is still at the top of the nation in foreclosures -- with almost nine percent of homes facing foreclosure.

With all these abandoned homes, come new dangers.

With one in 14 Nevada homes receiving foreclosure notices, we all need to pay closer attention to our neighborhoods.

More than 77,000 Nevada homes received foreclosure filings in 2008 ---an increase of 126 percent from the year before, according to Realty-Trac.

This year, with the increasing unemployment rate, the numbers are expected to get worse.

That's a problem for all of us -- not just for economic reasons.

With so many abandoned homes on Valley blocks, there are things we all need to look out for, such as stagnant pools and standing water, which breed mosquitoes -- putting your family at risk for diseases like West Nile.

Abandoned homes are also easy targets for criminals.

“It certainly would be something people living there should pay a little more attention to. If there's people at those houses that you know shouldn't be there, please feel free to call those in to the police,” said North Las Vegas police spokeswoman Chrissie Coon.

If you notice a stagnant pool, call the county's Mosquito Control hotline at 702-759-1220.

Some people are leaving pets in these homes. If you hear pets still inside or see them in the back yard, call Animal Control.