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Foreclosure Blight May Bring Big Fines for Banks

I placed an item on last week’s City Council agenda to discuss maintenance of foreclosed properties in Richmond to avoid becoming neighborhood blights. The second story below summarizes a presentation by Chief Magnus at that meeting. The first story describes a move initiated by Senator Perata to make it easier for cities to take action against banks that allow foreclosed properties to become blights.

Rundown foreclosures may bring fine

By Barbara E. Hernandez

Article Launched: 04/29/2008 03:57:20 PM PDT

Homeowners tired of foreclosed homes destroying property values with weed-choked lawns, vandalism and squatters, may get help from the state Legislature which could approve fines up to a $1,000 a day for those lenders who don't keep up their bank-owned properties.

Legislation authored by Senate President Pro Tem Don Perata, D-Oakland, would give notice to property residents that the foreclosure process has begun, provide tenants additional time to move from a foreclosed property and mandate maintenance of foreclosed properties to prevent harming values of neighboring homes.

The bill passed 28-10 in the state Senate Monday.

"In Oakland, you can see a house or two in foreclosure and it's obvious right away," he said, saying the bill was an important step to preventing further deterioration of neighborhoods. "It's like watching a house burn and you can't do anything about it."

Perata said that the bill gives local governments the ability to put liens on the property until it's maintained. That means if the property owners, whether a bank or investors or a mixture of the two, do not clean up the property they could lose the property to the city or county.

"Cities and counties could be in the housing business," he said.

So far the bill is finding favor with advocacy groups lobbying on behalf of homeowners and tenants.

"We think it's the most important bill working its way to the Legislature," said Kevin Stein, associate director at the California Reinvestment Coalition, which advocates access to credit for lower-income communities. "The finance industry is no longer in opposition and we hope it will pass out of the Assembly and the governor will sign it."

A previous version of the bill failed in January when it fell one vote short of passage and faced opposition from bankers and mortgage brokers. Now it no longer requires a face-to-face meeting between the loan servicer and customer, notices when the pending mortgage payment changes and limits affected loans from Jan. 1, 2003 through Dec. 31, 2007. If the bill is passed by the Assembly and signed into law by the governor, the measure would take effect immediately.

Any fines would be placed onto offending property owners by local jurisdictions, usually as part of code enforcement, said Perata spokeswoman Lynda Gledhill.

"Basically they have 14 days to fix it," she said. "If not, they charge the owner the maintenance fee or levy a fine."

Gledhill said that the money will stay local and not go to the state.

Sen. Tom Torlakson, D-Antioch, whose district is one of the most affected by foreclosure in California, said that the bill will help his constituency.

"We have so many families in distress and not knowing what to do," he said. "Neighborhoods are deteriorating and some of the lenders and financial institutions that did those phony loans, they're not living up to their responsibility."

Torlakson, who served on the Contra Costa County Board of Supervisors, said he was familiar with code enforcement and how frequently absentee landlords would let properties become "eyesores" as well as fire hazards.

"Normally a property goes into default and the bank steps up and does the right thing, but here it's so massive I think you're seeing the bad actors not doing the job they should do for their neighborhood," he said.

Assemblyman Guy Houston, R-San Ramon, could not be reached for comment. A spokesman said that Houston had not reviewed the bill as of Tuesday afternoon.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Read her real estate blog, Property Lines, at www.ibabuzz.com/propertylines.

Mortgage and Foreclosure Relief Bill Highlights
Tenants receive notice in six different languages once a notice of sale has been posted on a property.
The bill increases the current notice required to be given to residential tenants of foreclosed properties to 60 days.
Local authorities can impose a $1,000-per-day fine on financial institutions that don't maintain vacant properties if problems are not fixed within 14 days. This includes excessive foliage or weed growth, allowing trespassers or squatters or permitting mosquito larva to grow in standing water.
Source: State Sen. Don Perata


Foreclosed homes lead to neighborhood blight

By Katherine Tam
West County Times

Article Launched: 04/30/2008 05:41:18 PM PDT


Overgrown weeds. Trash abandoned in yards. Vandals stripping homes of copper and whatever they can sell for cash. Squatters moving in. Drug use.

Foreclosed homes that go dark and neglected are leaving behind a trail of blight that Richmond officials and neighbors fear makes neighborhoods unsightly and attracts crime.

"What happens with these properties has a serious potential to have a major destabilizing impact on neighborhoods," said Richmond police Chief Chris Magnus. "All it takes is a couple of foreclosures in an area as small as 100-owner occupied properties to have a dramatic impact on crime."

In the next seven weeks, a City Council ad hoc committee — Nat Bates, Tom Butt, Ludmyrna Lopez and Tony Thurmond — will look at strategies to curb the blight, from helping residents on the brink of losing their homes to ordering owners by legal action to take care of the property once it goes vacant. In addition, the council Finance Committee will look at possible funding for the effort, including a $148,000 federal grant, redevelopment money and private sources.

Richmond has 2,242 homes entering or in foreclosure, according to RealtyTrac, an online foreclosure-tracking company. The number of foreclosed homes from January to March increased 275 percent from that same period in 2007, a trend that is not unusual in a number of Bay Area cities, including Antioch and Brentwood, said Andrew LePage, a spokesman for DataQuick Information Systems, a real estate information service.

With more for-sale, auction and foreclosure signs littering neighborhoods, the ripple effect can be disturbing: The value of a home near a vacant property typically drops by about $50,000, which affects neighbors and city property tax revenue, Magnus said, citing figures from mortgage industry reports.

Crime can increase 6.7 percent a year in an area with two or three foreclosures out of 100 homes, he added.

In Richmond's Coronado neighborhood, Norman Yates and his neighbors see knee-high weeds and debris languishing in front of vacant houses. The city can tackle the problem while providing local jobs, he said, by hiring youths to maintain the properties, then billing the property owner.

"These properties show blight on the community," said Yates, neighborhood council president. "When they are what they are, they're an open invitation to whatever."

Officials are trying to get blighted properties fixed, Magnus said. When it comes to foreclosed homes, figuring out who owns the property can be difficult. Sometimes, owners walk away or banks avoid retaking the title quickly so they don't have the liability and responsibility of maintaining the properties or paying property taxes. Getting abatement warrants requires inspections, written notices and permits, which can take months.

Richmond's plight is mirrored in cities across the country. City and state officials fed up with the unsightliness and loss of property tax revenue are resorting to a variety of measures. Here's what some are doing:

·  Cleveland is suing 21 banks, alleging their lender practices led to a crisis that resulted in blight and lower city property tax revenue.

·  Minneapolis is looking at offering $10,000 to anyone who buys a foreclosed home, repairs it and lives in it for at least five years. The amount increases if the house is in a more troubled neighborhood.

·  New York City is giving $2.8 million to start a nonprofit group that helps homeowners avoid foreclosure.

·  Ohio teamed up with 1,100 lawyers to provide free legal help and representation for homeowners who could potentially resolve their loan issues before foreclosure.

·  Virginia Gov. Tim Kaine has asked state lawmakers to pass legislation that gives homeowners more time to work out a way to make payments before foreclosure proceedings start.

In addition, some communities use cash or tax liens to buy homes, and are then renting or reselling them, Magnus said. Some use warrants or lien holder agreements to bill the property owner for repairs. Others use criminal and injunctive enforcement to go after banks, when banks take control of a property but don't complete the foreclosure so the property sits idle for months.

There is no easy solution. Wood boards often are used to cover windows and keep potential vandals out, but some in Richmond's North and East neighborhood don't think that's the best tactic.

"Boarding it up is supposed to keep people out, which is a good thing," resident Sandi Genser-Maack said. "We don't want people squatting, but we don't like boarding it up because it looks bad, it makes the neighborhood look bad."

What other cities are doing merits review to see whether any would work locally, said Jim Jenkins, neighborhood council president in the North and East. He hopes officials will organize more free foreclosure workshops like the one held March 29, which drew about 300 people and offered help with the foreclosure process, tenant rights and counseling.

"This is going to go on for at least a couple years," said Jenkins, who works in the mortgage insurance field. "We need to work with the county and see what we can do from Sacramento."

Reach Katherine Tam at 510-262-2787 or ktam@bayareanewsgroup.com.