Most of the problems foreclosed properties cause come because they tend to become vacant and stay vacant for a while. Often a homeowner flees at the first notice of a foreclosure filing. If not, they, or their tenants, are almost always evicted at foreclosure.
We all know the litany of what happens then: legal limbo, deferred maintenance, vandalism, increased crime, often demolition. An ugly tale.
In my column for Metroland this week, I argue that it’s habit, and a kneejerk desire to punish those who default on mortgages, that keeps lien-holders from exercising their own best interests in maintaining these assets — by doing whatever they can to keep them occupied.
The idea of letting people stay rankles. It doesn’t punish anyone. At least not enough. The destroyed credit rating, lost equity, and shame of failing at the American Dream are not enough. A defaulting owner must pay the largest possible price for . . . for what? For being pressured, misled, or lied to by a mortgage broker in most cases. For betting wrong on a rising housing market in others. For being fiscally irresponsible in some, sure. Or for losing a job or getting sick at the wrong time. Without a ton research into each case, we don’t know.
There are options — from foreclosure deferrals to allowing owners to stay on as renters to buying distressed loans before foreclosure. More and more, I’m hearing that these are going to be crucial strategies to implement as soon as possible.
Relatedly, one researcher from Detroit recently told me that she thinks nonprofits in these hard-hit weak-market areas need help transitioning to a focus on managing rental property instead of developing for-sale property, and quickly, if they are going to play a role in truly stemming the negative effects of vacant property on these high-foreclosure areas. After all, we’re basically ending up with a glut of for-sale homes, but a continued shortage of affordable rentals.
My experience has been that CDCs’ boards and funders tend to be skittish about developing rentals – especially new rental properties near the new for-sale properties they’ve already developed – because of a perceived association with transience and instability, and a desire to protect their prior investments.
The solution to all that seems be in CDCs’ maintaining ownership of those rentals, and not turning them over to private landlords or municipal authorities. That way, a lot of the bureaucracy around dealing with nuisance tenants is eliminated, and the CDCs retain an element of control over tenant selection – an element of control that can be very comforting to boards and funders.
(Of course, this opens up the door to bad decision-making in the tenant selection/removal process on the part of boards and funders, and that’s also a legitimate concern.)