The foreclosure crisis has exacerbated ongoing concerns about the impacts of vacant homes on communities. The loan servicer, who is the typical steward of a property throughout the foreclosure process, may choose to reduce the costs associated with a long-term vacant home by walking away from the foreclosure process instead of completing it or may avoid maintaining a vacant home up to local code standards. In both cases, the vacant home is subject to limited or no oversight and poses a substantial risk to the surrounding community, such as lowering property values, attracting criminal activity, and causing blight.
The new report, based on an analysis of data on City of Chicago vacant properties, foreclosure filings, foreclosure auctions, and property transfers, examines the scope of two kinds of vacant homes that likely are negatively impacting their communities:
1. “Red flag” homes that are vacant properties where a foreclosure has been filed but has not reached a clear outcome, raising concerns that the loan servicers have decided to abandon the process.
2. Likely-vacant lender-owned homes that are not registered with the City of Chicago, potentially in violation of its vacant property ordinance.
A closer examination of these two types of homes found that:
• There are 1,896 “red flag” homes in the City of Chicago, causing significant concern for communities. Over 40 percent of these red flag homes have been in the foreclosure process for more than a year and a half, which means their loan servicers have likely decided not to complete foreclosure.
• Red flag foreclosures are disproportionately concentrated in Chicago’s communities of color, often on particular blocks—even more so than typical foreclosures or all classes of vacant properties. Over 71 percent of red flag homes are located in highly African-American communities, compared to only 6.5 percent in predominantly white communities. African-American communities are 11 times more likely to have a red flag home, while they are 3 times more likely to have a foreclosed property and 6 times more likely to have a vacant building than are white communities.
Communities with the most red flag homes include West Englewood (176 properties), Roseland (137 properties), Englewood (137 properties), and Austin (110 properties).
• There are 2,558 lender-owned single family homes that likely are vacant but not registered with the City of Chicago. This represents over 57 percent of the inventory of lender-owned single family homes in the City as of the third quarter of 2010. These homes likely are not secured and maintained to the standards required by the City of Chicago and may be in an advanced state of disrepair.
Red flag foreclosures place a significant burden on the City. Administrative costs of dealing with these properties in building court, securing the properties, responding to criminal activity, and potentially demolishing these properties will cost the City of Chicago an estimated $36 million. The top mortgage servicers and trustees associated with these likely abandoned foreclosures in the City of Chicago include Bank of America (314 properties), Wells Fargo (234), U.S. Bank (185), Deutsche Bank (178), and JP Morgan Chase (165).
“These troubled vacant homes have subjected already hard-hit communities to unsightly and potentially unsafe conditions for extended periods of time,” said Geoff Smith, Senior Vice President of Woodstock Institute. “Local government and service providers must be empowered to counter the devastating impacts these homes have on communities, and lenders and mortgage servicers must be held accountable if they choose not to adequately maintain vacant properties under their stewardship.”
The report includes several policy recommendations to reduce the negative impacts of troubled vacant homes on communities, including:
• Keep homes occupied—Loan servicers should proactively pursue solutions, such as sustainable loan modifications, that allow homeowners to stay in their homes whenever possible.
• Hold servicers accountable—State and federal regulators should ensure that loan servicers are implementing strategies to limit the damage that vacant properties have on communities.
• Increase ability to enforce existing vacant property rules—Local governments should be given more authority to ensure that mortgage servicers maintain vacant properties up to required standards.
• Improve data sharing to increase information on vacant buildings—Better coordination of data among different levels of government would allow for more efficient enforcement of vacant property registration and maintenance requirements and early identification of compliance issues.
For more information, please contact Geoff Smith at 312-368-0310 or gsmith at woodstockinst dot org.