By Kate Berry
January 27, 2011
Mortgage servicers have refused to complete foreclosures on thousands of vacant homes in Chicago because they do not want to pay the cost of maintaining the homes, according to a report this month from the Woodstock Institute, a local nonprofit.
The companies' actions, or inaction, circumvent local ordinances that require properties be registered with the city. But Chicago lacks the resources to identify all the vacant homes and impose even minimal $500 fines on the servicers, so the properties stay vacant, causing blight, mostly in minority neighborhoods, said Geoff Smith, a senior vice president at the institute and the report's co-author.
Nearly 2,000 properties "are in limbo because of servicer walk-aways," Smith said in an interview Wednesday. After analyzing data on vacant properties, foreclosure filings, auctions and property transfers, Smith found that servicers have abandoned foreclosures on 1,896 homes for more than a year and a half. "They don't want to take ownership of the properties because there is a cost associated with maintaining and securing them."
Nearly 60% of seized properties, or 2,558 homes, have not been registered with the city because banks and investors do not want to make the required repairs, he said. Instead, taxpayers will foot the bill: Chicago is expected to pay out $36 million to maintain the properties, including possibly demolishing some of them, Smith said.
Such "red flag" foreclosures are concentrated in black and Hispanic neighborhoods — more than 70% are in black communities, compared with 6.5% in predominantly white communities.
The nonprofit is working with the city, trying to get a list of addresses so local officials can hold servicers accountable for maintenance. Chicago is also considering an ordinance that would shift responsibility to the entities that hold liens on the properties.
"Adding preforeclosure accountability would give servicers an incentive to keep people in the property," Smith said. "If you add in costs that are significant enough, they may choose to make loan modifications more viable."