Earlier this month, The New York Times published a major front-page story on deed theft scams that highlighted the staggering homeowner losses at the hands of increasingly sophisticated criminal enterprises that seek to steal homes from vulnerable people in gentrifying New York neighborhoods.
In the article, the Times profiles several homeowners at risk of foreclosure who were tricked into signing over the deeds to their homes, such as Ozella Campbell, an elderly, disabled Bedford-Stuyvesant homeowner who lost her family’s brownstone and now lives in an unheated, illegally converted garage in Canarsie, Brooklyn.
At the Center for NYC Neighborhoods, we have witnessed the devastation caused by scams targeted at homeowners at risk of foreclosure, and we work to educate homeowners and community leaders about the importance of seeking help from legitimate actors. As home values continue their meteoric ascent in New York City, deed theft scammers see vulnerable homeowners as tempting targets. Like many scammers, they target the elderly and communities of color, claiming to offer home-saving solutions to families desperate for a way out of foreclosure, but they end up taking their homes out from under them.
Rising property values are undoubtedly a blessing for some homeowners, but for vulnerable homeowners, they can increase the risk of displacement. While deed theft scams are a particularly malevolent displacement force, many others are at play in middle- and working-class homeowner communities facing gentrification.
Homeowner Displacement in Hot Markets
Today’s hot real-estate market in New York City poses a new threat to communities that are still struggling to get out from under the foreclosure crisis. In neighborhoods like Bedford-Stuyvesant and Bushwick—which have already seen home prices double in the last five years—to newly hot communities like East New York that are targeted for development, the influx of real estate speculators seeking to capitalize on rising property values, combined with the tens of thousands of homeowners struggling to pay property taxes or seeking to avoid foreclosure, presents a “perfect storm” of displacement for vulnerable homeowners.
In addition to deed theft scams, other forces of displacement include the increasingly common phenomenon of private equity firms purchasing distressed mortgages in bulk from the federal government. Through distressed note sales operated by Freddie Mac, Fannie Mae, and HUD, large investment firms like Lone Star Funds, Bayview Asset Management and Selene Finance LP are accumulating vast portfolios of distressed properties. Unfortunately, as detailed in a recent article, some of these note purchasers seem to be seeking to displace current homeowners in hopes of taking advantage of rising prices. The Times documented cases where Caliber Home Loans, the servicing firm for Lone Star Funds, refused to work with homeowners, failed to provide feasible loan modifications and rushed homes into foreclosure. Similar abuses by other major note purchasers were documented in a recent report by the Center for Popular Democracy.
Taxes present another challenge to homeowners in gentrifying areas. As gentrification heats up property values, tax burdens rise for longtime homeowners. Although New York City property tax increases are capped at six percent a year for 1-3 unit homes, the cumulative impact of increases can still overwhelm some owners’ ability to pay. Since 1996, the city has sold delinquent tax debts to investors in a lien sale every spring. Once an investor owns a household’s lien, it typically applies burdensome interest rates and thousands of dollars in fees, sometimes doubling the household’s debt. As interest and fees build, the risk of foreclosure increases for homeowners, while investors profit. Homeowners who escape the worst-case scenario of tax lien foreclosure may be forced to sell their homes, take on high-interest loans, or accrue exorbitant credit card debt. A recent analysis has found that properties with sold liens tend to come primarily from communities of color.
Finally, the technically legal but often deceptive practices of all-cash real estate speculators are weighing heavily on households in hot neighborhoods. Last year the New York Times documented the pervasive use of Limited Liability Corporations (LLC) and all-cash offers by foreign billionaires to buy some of New York’s most expensive real estate. A similar trend has taken shape in less glamorous zip codes where upzonings and gentrification have made house flipping a lucrative business. Speculative brokers have been known to seek out homeowners struggling with their mortgage or taxes in order to offer cash purchases that would relieve homeowners of their debts but are substantially under the actual market value of their home. Many residents of central Brooklyn have been buffeted by aggressive and frequent solicitations. Without an understanding of the real value of their homes, some owners sell only to see their homes put back on the market for double or triple the price within months.
As a community, we can stand up for our most vulnerable neighbors as they are placed within the cross-hairs of con artists and speculators who are seeking to acquire their homes by hook or by crook. In gentrifying neighborhoods, escalating displacement pressures make housing counseling and legal services more critical than ever so we’ve created a new initiative for seniors at risk of displacement and are working with our partners at community-based organizations to develop strategies for educating homeowners in communities slated for rezoning. We've also joined together with a number of advocacy organizations and community development corporations to form the Coalition for Affordable Homes, and are working to highlight current displacement pressures while advocating for policies that support homeowners and creating new affordable homeownership opportunities. As a coalition, we're working with our partners at City Council and with the de Blasio administration to implement community land trusts and create a Community Reinvestment Fund to purchase distressed mortgages and provide principal reduction to underwater homeowners.
Ultimately, our ability to protect the city’s working- and middle-class homeowners will help decide whether New York City will remain a place of opportunity for all people, or only the wealthy. With heightened awareness and more vigorous legal oversight, we think the challenge posed by deed scams and unscrupulous speculation can be contained and our neighborhoods strengthened.
(Photo credit: Courtesy of VBC17 via flickr, CC BY-ND 2.0)
Christie, I think you bring up some excellent points that are often left out of the conversation when we talk about the exploitation of our lower-income and other vulnerable residents. However, I cringe at the idea you present that these things happen because of gentrification. This feels like yet another campaign of using headline-worthy anecdotes to paint a very antagonistic picture of rising home values.
That’s not to say that speculation and scams aren’t an issue in gentrifying neighborhoods—that is certainly the case even in lower-cost cities than New York. What I am hoping that writers on this site (and others) will learn to do is a fair comparison to neighborhoods that aren’t stereotyped as gentrifying, as well as a comparison to cities other than New York or the Bay Area. To me, we do a disservice to our citizens when we say something is a phenomenon of gentrification when either (a) it is a phenomenon in non-gentrifying neighborhoods as well, or (b) the problem is not nearly as widespread as writers would have us believe, for the sake of getting people to click on an article.
On another note, that 6% cap on property tax increases would be a welcome change to other states like Texas. Here it is 10%.
In Florida, Community Land Trust homeowners have a protection against escalating taxes in gentrifying communities. Florida Law was amended to allow that CLT properties, no matter the true value, can only be taxed at the resale-restricted value. This is an important rule but it must be enacted State by State. Contact Jaimie Ross at the Florida Community Land Trust Institute for more information. She spearheaded this change to State law.
Thank you Chris, for raising this important point. Gentrification is often an overly blunt term, and it can difficult to separate out these issues in places with heated real estate markets like New York. What’s important is to identify and describe what’s happening in places like East New York as well as Texas, and craft solutions. I’d love to hear more about what you’re seeing in your community!
Thank you, Anthony, this is very helpful and we are always interested in learning about advances made nationally. We’re working to implement a Community Land Trust model for homeowners in New York City and are very excited about their potential for preserving permanent affordability. We’ll contact Jamie and see if we can replicate the Florida law for New York!