Will American Cities Protect Neighborhoods from Abandoned Foreclosures?

RTAblog_2013_0624_BlightPropertyThe American economy is slowly recovering from the housing bubble yet many neighborhoods are still struggling with abandoned foreclosures. Blighted property ordinances are common though identifying properties and enforcing the ordinances can be significant challenges.

If you’ve been paying attention to the housing market, you’ve noticed that it’s fashionable for the media to occasionally issue “top ten” lists for cities with the most foreclosed or abandoned homes. In this USA Today article published on Saturday, you can find a top ten list that includes Atlanta (at number nine).

The challenge with these lists is that so few people look at the supporting information. For example, there are ten cities listed, yet Wichita, KS (number five on the list) has less than 100 abandoned homes. Birmingham, AL and Boise, ID are both listed yet they have 375 and 361 abandoned homes respectively. That’s a pretty stark contrast to the other cities that have well in excess of 1,000 abandoned homes.

Jacksonville, FL is listed at number two on the list with 5,475 abandoned homes. Can you imagine the area occupied by that many homes? Atlanta isn’t laid out on a neat grid like some other cities though in Midtown Atlanta it’s common to find about fifteen homes on a block. By that measure, Jacksonville’s 5,475 abandoned homes would equal 365 square blocks. That’s a huge area – larger than any single development of which we’re aware.

Abandoned homes, especially those with no air conditioning are subject to significant mold and mildew issues. Home owners must constantly protect against water intrusion – water getting in the house through roof, window, foundation and other leaks. Without regular maintenance, houses can deteriorate quickly. In really hot weather with high humidity, the houses are essentially composting from the inside out. It doesn’t take long for an abandoned house to be a total loss.

Some municipalities (cities and counties) use a blighted property ordinance to address the properties that are diminishing the value of neighboring properties. Some Georgia municipalities have adopted ordinances that allow a higher tax rate on nuisance (blight) to encourage maintenance or a sale of the property. You can find a model ordinance on the Georgia Municipal Association’s website. This approach makes some sense if the additional revenue can be dedicated to enforcement of the ordinance rather than just going into the municipality’s general fund.

As you might expect, Detroit is ground zero for the issue of blighted property. The Detroit Blight Authority was created to address the issue. The authority is a non-profit corporation addressing the issue we described earlier – the authority’s pilot project cleared a ten-block area. Using our previous numbers, that could be approximately 150 properties. The work was done at no cost to taxpayers.

Those of us living in municipalities without a blighted property ordinance should be paying attention. In 2012, we saw article after article after article about the overly-creative and irresponsible suggestion for the use of eminent domain to seize properties where home owners owed more than the property was worth. The suggestion was intended to prevent foreclosures and abandoned properties. Berkley’s City Council passed a resolution urging county officials to keep the properties out of the hand of banks.

Please consider using your neighborhood civic organization (or organizing your neighbors) to explore whether your municipality has the tools to address issues like abandoned properties. If not, you can start a discussion about whether a blighted property ordinance is right for your municipality before your local leaders try to employ existing tools like eminent domain for applications outside of their intended use.

We’re more successful when we work together as neighbors to address issues like blighted properties by recruiting new neighbors and gathering to discuss issues in a proactive way. Please leave a comment below to let us know your thoughts – especially if you’d like to share any best practices or experiences.

Image by Kevin Dooley used under creative commons license.

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2 Responses to Will American Cities Protect Neighborhoods from Abandoned Foreclosures?

  1. Trey says:

    I think you’re misinterpreting the numbers. Birmingham, for instance, recently claimed to have over 8,000 abandoned properties…not 375. Based on what I read in the USA Today article, 375 is only the number of vacated foreclosures. Due to home prices falling less than the national average during the housing crisis, Birmingham has a relatively low foreclosure rate (yet a high % of those are indeed vacated), however due to “white flight” and a decreasing population, there are thousands of abandoned properties around the city.

    On a separate note, ad forgive my ignorance here, are you advocating against demolition of abandoned homes by eminent domain in general or just the use of taxpayer funds to do so? Could you help me better understand how a “blighted property ordinance” that results in the demolition of abandoned homes (like in Detroit) is different than the use of eminent domain to do so? I would think that Detroit would have to use eminent domain to have the right to demo the house, as well.

    References:
    http://www.wset.com/story/22886086/first-on-abc-3340-birmingham-town-hall-meetings-on-abandoned-homes

    http://www.informationbirmingham.com/pdf/community/adeca%20nsp%20pre-applicaton.pdf

    • Trey, thanks for your note. You’re right, there are probably many more abandoned houses in Birmingham than the 375 abandoned foreclosures noted in the USA TODAY article referenced. That’s one of the key challenges of protecting neighborhoods – figuring out which homes are abandoned. Our thinking is that lending institutions have protocols to follow-up when a borrower is behind on his|her mortgage payments so they know which properties are abandoned. That’s different than properties owned outright because the municipality may not follow-up on delinquent property tax bills (for years) and unpaid utilities just go into collection.

      Unfortunately, some lending institutions take an extraordinarily long time to sort out the paperwork and sell a property so it’s subject to the issues in the blog – properties that aren’t maintained fall apart quickly, especially when there’s water intrusion. It seems there’s an opportunity to create a mechanism to address the properties known to be abandoned (based on reliable data from lending institutions and utilities) so neighborhoods will have some protection. The extra revenue generated from the ordinances mentioned could help the municipalities with enforcement which should turn the tide on abandoned properties.

      To address your second point, no, we don’t advocate the use of eminent domain. The abandoned properties seem to typically be lost when the owner fails to pay his|her debts and is sued. In some cases, that might be money owed to the municipality from penalties in the abandoned property ordinance and property taxes. In that case, the owner gets his|her day in court.

      In the case of the Detroit Blight Authority, the property doesn’t change hands. It’s just cleared of the decomposing house so the hazards are removed. That significantly lowers the cost of maintenance to just yard work. That’s better than having dangerous properties that attract squatters and it creates an opportunity for a developer to realize an economy of scale by offering to buy entire cleared blocks so they don’t have to bear the higher cost of building one infill project at a time. What investor is going to pay for a new infill house among abandoned homes? The property owner gets the value of the land even if the house is lost so avoiding the use of eminent domain all together helps preserve some value for the property owner.

      We operate in a similar manner in Atlanta’s challenged neighborhoods. It’s rare for a developer to invest in an infill house among decaying houses because the home won’t sell for the cost to build it + profit. Typically, developers try to find at least a few houses if not a block to create an area of value before making an investment. That’s resulted in all sorts of creative construction methods like pre-fab housing to prevent cooper theft and other issues before the houses are finished.

      The complaint against eminent domain in the blog post was that some municipalities are trying to use it to effectively seize the mortgage from the lender to allow people to stay in homes in which they already can’t afford to keep. That’s why it’s called “irresponsible” in the blog post.

      Hopefully this answers your questions. Thanks for the links – looks like good information!

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