Vacant property registration and property ordinances have been an integral part of judicially sanctioned enforcement efforts in communities for some time. These municipal rulings serve to protect citizens from neighborhood blight, the ensuing rise in criminal activity and the resulting deflation in property values so common in areas with high foreclosure rates. Millions of homes have been abandoned, resulting in the erosion of municipal tax bases everywhere, inhibiting the ability of local governments to provide and maintain vital public services.
It should not be really surprising to anyone associated with loan servicing or default management that local officials are pushing back.
As more people are publicly showing “rage against the machine,” local officials are feeling tremendous pressure from their constituencies to address the problems. Servicers and investors, who unintentionally and unwittingly may have become “slum lords,” have provided the impetus for what may be perceived as an overzealous backlash to dealing with abandoned properties. In response, communities are actively enforcing vacant property registration ordinances.
The laws often require payment of registration fees that can run into the hundreds of dollars, and oftentimes involve bond posting requirements to cover the securing and maintenance of the property.
Stiff fines and penalties can also be levied and accrued on a daily basis for noncompliance, even if the foreclosure has not yet been completed. It is incumbent on asset managers to have complete property information early.
They must also have the ability to engage informed and vigilant outsourcers to assess the condition of their assets, and assure they are demolished, disposed of, or properly maintained in the timeliest manner possible.
The General Services Administration reported the cost of maintaining real estate in 2010 was a staggering $30.7 billion to maintain the 3.3 billion square feet of property it owned. With statistics like that this is a good time to consider all options available for the disposal of distressed assets that ease the burden of the government, servicers and investors, and start the engines of community revitalization.
The foreclosure laws in many states have presented major obstacles and do undisputedly need a tune-up. We do not hold out much hope that will happen at any more than the glacial pace of other legal reformations. So, as a possible option, servicing professionals and investors may want to look at a grassroots solution.
Land banking has long been a means of removing blight from neighborhoods while fostering community revitalization. As the neighborhoods improve, adjoining property values stabilize and may even improve. Municipalities also benefit as it increases the cash flow to their coffers; the result is often a win-win scenario for both residents and local governments.
While not every foreclosed property is a candidate for this option, there are certainly enough viable properties to warrant an increase in land banking practices. This could be especially impactful in some urban areas that have been plagued with abandoned homes and could benefit immensely from the “planting of this seed.”
Diane Gozza is EVP, business development, at Integrated Mortgage Solutions, Houston.
