REO and Vacant Properties: Strategies for Neighborhood ...

REO and Vacant Properties: Strategies for Neighborhood Stabilization, September 2, 2010 Panel Five

Tammy Edwards: Thank you, Joseph. And good morning, everyone. First of all, before we get started, I would like to give a shout out to my colleagues in the tenth district who are watching us this morning. From our office in Kansas City as well as our branch in Denver. So hello to my colleagues as well as the community partners that we've invited to watch this morning.

We are in for a treat. We have a wonderful panel in store for you this morning about overcoming local challenges. The tide of foreclosure sweeping the nation is leaving behind thousands of vacant homes and blighted neighborhoods. Homeowners watch in shock as the values of their homes plummet, far below the cost of their mortgages. Unable or unwilling to pay rising monthly payments, many have succumbed to foreclosures or have simply abandoned their homes to the bank.

As a result, the number of vacant homes have spiked in recent years, foreclosed and vacant holes can sit unsold and empty for months or even years as sandy mentioned this morning, falling into disrepair, attracting crime and bringing down the values of adjacent homes, thus spreading the blight throughout entire communities. Consumers not only lose their homes, they lose their wealth and a piece of the American dream. The loss of tax revenues to communities translates into less money for schools, firefighters, police officers, street repairs and social services. Communities are also saddled with new cost of upkeep or demolition or must spend money to hunt down absentee property owners to get them to mow the weeds or secure their increasingly dangerous buildings. Community development plans are often put on hold. Financial institutions that sold or service the loans can find themselves unprepared to manage the large portfolios of vacant homes that they now have. Reselling homes can be difficult because the homes have lost value. In fact, the market values of entire neighborhoods as we've discussed throughout this summit have fallen.

Today we have two great examples of communities that are making headway. Cleveland and Boston are two very different cities with two very different housing markets, but they face the same challenges and each are making strides that provide promising models for other communities. In Cleveland, the Cleveland community leaders are responding in two ways that focus on assets and management. They are directing efforts at the economics of foreclosure, taking steps to shift more financial responsibilities for REO properties to the banks, landlords, and investors that own them.

They are threatening to demolish dangerous buildings, pressing code violations, filing lawsuits and making it harder to walk away from vacant and foreclosed homes.

They are also creating initiatives that encourage responsible management and redevelopment. Rehabbing vacant properties in targeted areas, leveraging existing assets, land banking and engaging organizations and institutions in long-term redevelopment plans for vacant property.

In Boston, the Boston community leaders are leveraging partnerships to address foreclosures and REOs and to assist many occupants to hold on to their homes.

One innovation is aimed at stabilizing neighborhoods hardest hit by foreclosures by, among other

things, buying bank-owned homes at discounted present-value -- present market values and reselling them to existing homeowners. Research has also allowed leaders to better understand the challenges facing low income borrowers, more education to help them with budgeting, banking and understanding the real cost of owning a home and maintaining it.

Our panelists today will talk about the lessons they've learned that can be applied to communities across the country. These lessons include realizing the value of strong code enforcement, planning ahead for sustainable reuse of vacant properties and acting swiftly to prevent vacancies in the first place and to assist more people in to remain in their homes. Providing us with great insight today, we have an esteemed panel of experts who include Frank Ford from Neighborhood Progress, Inc., Judge Ray Pianka from the Cleveland Housing Court. We have Elyse Cherry from the Boston Community Capital and Evelyn Freidman from City of Boston.

Help me in welcoming our panel, first of all.

[Applause.]

Tammy Edwards: Each member of the panel will provide a brief introduction statement and then I will follow that with a question for each. Then we will have plenty of time for your questions. So we will start with Frank.

Frank Ford: Thank you. I'm going to do a brief commercial announcement first. To invite all of you to Cleveland October 13 through 15 for the national vacant properties conference being sponsored -- called Reclaiming Vacant Properties, and it's being sponsored by Dan Kilde and Jennifer Leonard with the Community for Solutions. I have your name -- it's better than if I said the old name. I got -- Center for Community Progress. Please take a look at that. You can Google it or talk to Jennifer about it and get information, but I hope you consider coming.

What I am going to do on my part of the session is show you a short video of a distressed REO property to ground this into some reality and look at key decisions that led to getting this property to this point. Who is making those decisions? And what can we do to influence the behavior for those stages. This is not a staged video. It's not like the guy who has a wilderness shows that's got a crew if something happens. I shouldn't have done this. I went into the house alone. You'll see the Burger King bag on the stairs. Somebody was there, I don't know. It's starting midstream and I'll end it when it's over.

Do we have sound? If we don't have sound ...

Video: It's serviced by home ...

Frank Ford: Well, there's rain on the umbrella I was holding, crackling sound.

Video: My name is Frank Ford, executive director of Cleveland renewal project. I'm standing out here in front

of 1232 Addison in the St. Claire Superior neighborhood in the City of Cleveland. It is May 8, approximately 12:30 in the afternoon.

This is a house owned by Wells Fargo. And when I was out here last Saturday it was wide open and vacant.

It's serviced by Home Eq. There's some stickers on the window from Home Eq. When I was out here before, the side door was wide open and there was water rushing in the basement.

Side door is still wide open.

And I think I'm going to go inside.

Anybody here?

[Some chuckling in the audience.]

Video ? Frank Ford: I think you can hear the water running, rushing in the basement.

The basement door, there's probably not enough light to see.

I'm holding the camera over the basement stairs.

And I think that's it. I don't think I want to be here too much longer.

Frank Ford: Okay, we can stop it.

Now, for the serious part.

This was an Argent loan; Argent for those who don't know is probably one of the most irresponsible subprime lenders.

The loan was bought by Wells Fargo. It was foreclose the on and taken back at sheriff's sale in 2008. Wells then sold it for $2,500 to a company called best buy properties. They put it on the Internet and a week later somebody in England, some guy, I feel sorry for him, he paid $4,150, wells made $2,500, got something back. Best buy got $1,600. This guy in England who I have been trying to get a hold of, by the way, bought this property thinking probably turn of the century house, $4,000. How can I lose! The way he'll loss, it's headed for demolition. It will be a $10,000 demolition, it's a pretty big house. He's going to have an empty lot of no value. And considering the decisions ? oh, and one more thing. Wells saw this video before they sold the house. The decisions ? what were the decisions that were made? Well, first, buying an Argent loan. Where is the due diligence? Certainly, by the time that loan was bought, their track record was known. Their default rate was extremely high. Second, choosing to modify rather than foreclose. Certainly someone thought about that. Well, if this was a $100,000 loan, what if they'd written off $30,000 in principle? It's extreme, but it's better than what they ended up

with. Third, not keeping up with the property. There are business decisions that go into a home. That's a criminal matter, and in Cleveland, these are criminal codes. Fourth, dumping the property to some irresponsible flipper. Those decisions, now let's look at who made those decisions. Either a depository bank as a trustee for a loan pool, so the mortgage might say in this case U.S. Bank, trustee. Or, are the decisions made by a servicer? It could be Wells Fargo serviced it or it could be U.S. Bank serviced it.

Now, I've got four slides I want to look at. Here are the top 20 plaintiffs for closing on the subprime loans. Notice the predominance of depository institutions regulated by CRA, the four regulatory agencies. Top 20 buyers at sheriff's sales. Again, look at the predominance of depositories regulated. Top 10 servicers ranked by total servicing. With the exception of one, I believe they are all depository institutions. Notice the last column is one I added. Notice the depository banks for servicing is 80 percent in the top grouping. Here's why this is important. Here are the top 20 sellers of REO properties for less than $10,000. Look at the predominance of depository institutions. I will note that Fannie Mae, which you have been hearing about, has changed their practices, their numbers will be less known. Here's why this is important. We'll often find ourselves trying to address a property, and we'll talk to the mortgage holder or the REO holder, and they'll say they're just the trustee and that we have to talk to the servicer, but the servicer says they don't hold the title and that you'll have to talk to the trustee. And it's this back and forth finger pointing, and I finally came to the decision that it doesn't matter. It's the depository institutions that are regulated by CRA that are mostly involved in this.

I had a couple more points I'll try to touch on quickly. Code enforcement. Absolutely, code enforcement needs to be increased.

I know this is President Gianalto said that it is questionable to what extent CRA can be used, but I'd say the regulatory institutes really need to push the envelope on this.

Tammy Edwards: Thank you.

Judge?

>> JUDGE RAYMOND PIANKA: The Cleveland Housing Court was established 30 years ago as a way to enforce state statues, and then there was the Toledo Housing Court after and the Columbus Environmental Court, but all Municipal Courts have that housing type docket. I have been on the bench for 15 years and the type of cases that I have seen has changed drastically in those 15 years in the past it was an absentee owner or owner occupant in an inner ring, where the trim needed painting. I'm still seeing the gutters with the trim needed painting, but the house is condemned, stripped out. Legal title owner walked from the property. The mortgage company has walked from the property, leaving the citizens of Cleveland to deal with the aftermath.

The housing court, in its role as problem solving therapeutic court, tries to work on a number of issues having to do with real estate in the City of Cleveland and the village of Bratenol. We have very few cases from that village, which is a high end community adjacent to Cleveland.

In 2005, the national vacant property campaign did a study on Cleveland and called Cleveland at the Crossroads, which is available online. It outlined that there are 10 to 25,000 vacant structures in the

city. We really don't know how many. And that one abandoned property, of course, takes value away from the other properties. But the lack of effective code enforcement facilitates flipping. And the bottom line to that report is that it's just too easy to own vacant and abandoned property in the City of Cleveland.

Of course, the foreclosures that we started to notice in the late '90s accelerated. What are our challenges currently? You see the ad from eBay, it lists a property. Twenty-two bidders bid this house up to $1,200. The four family brick, the next one, 22 bidders bid it up to about $1,200. You also see ads up on Craig's List, which outlines investors, Ohio bulk liquidation. And that you can buy a three bedroom properties for $7,000. And unless, unless you think that you in your states can't be affected, the ad goes on, More properties in other states available. So we are seeing issues of people from Israel, China, Saskatchewan who have owned and purchased properties on the Internet. The photos of the property are much like the date websites. What you see isn't necessarily what you are going to find when you meet the property in person.

[Laughter.]

Judge Raymond Pianka: As Frank has outlined in his video. So we have unrecorded interest, titles flip, flip, fliped without benefit of being filed at the county recorder's office. Online purchases. Service issues are difficult for out-of-state buyers and out-of-the-country owners. Then there are business entities that are unregistered to do business in our state and may even be defunct.

So the Court had to change its way of doing business. There are a number of things that we had to undertake. One aspect that involved corporations. The Court's ongoing challenge is compelling corporate defendants to appear in court. In general, the City of Cleveland does not name officers as defendants, although they can. They name the corporations. Several unique issues arise when a corporation or other entity is named as a defendant. The use of corporations as statutory agents for other corporations often complicates service, as does the failure of out of state corporations to register with the State.

Unlike individuals who are subject to arrest if they fail to appear when summoned, corporations and other entities cannot be arrested, nor are the corporate officers subject to arrest.

So the Court has established a corporation docket given our limitations, which requires the corporations to come into court after being served. If they fail to come in, we send out courtesy notices apprising them of potential contempt of court. If they fail to come in, they can be fined $1,000 a day, which is converted to civil judgment -- their properties are liened up. We find that the courtesy notices are helpful, particularly with corporate officers when their spouses receive them, notice of hearings in Cleveland housing court. It's helped quite a bit to bring in corporate defendants.

We have also established a clean hands docket. Clean hands approach is for our eviction section of our court. It prevents a property owner with an outstanding warrant in corporate case from eviction until the owner addressed the criminal warrant issues. Previously we have seen a number of corporations and individuals filing eviction actions, but we had warrants for them on the criminal side of the Court. We stopped. Said unless you come to court with clean hands, address those issues, you cannot move

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download