By Paul Wenske
RISMEDIA, June 20, 2008-(MCT)-Some nights Terry and Carrie Madden won’t even step onto their patio-the stench and mosquitoes from the abandoned swimming pool next door are overpowering.
The Maddens’ cash-strapped neighbors moved out in August, and the lender on the now-vacant house let it fall into disrepair. The pool is slime-green. The grass is knee-high. Once Carrie Madden had to call police to chase away burglars.
“It’s frustrating,” she said. “It’s an eyesore, and it sits right at the entrance to our neighborhood. It’s not only a blight, it’s unsafe.” Not what you would expect in a neighborhood of homes whose average value is about $280,000.
City officials say the house is a prime example of a little-reported but increasingly worrisome trend: Lenders are delaying foreclosing on homes vacated by owners who can’t keep up with payments.
Maintenance then stops, or it falls on taxpayers. And neighborhoods have to deal with a growing cancer of blight and falling home values.
“Someone has to maintain the property,” said Nathan Pare, the head of Kansas City’s dangerous buildings department. “If the owner surrenders the house, then it’s up to the bank. But some banks aren’t doing it.”
Why some banks aren’t quickly foreclosing on vacated properties is open to debate. The trend runs counter to the common assumption that banks want to get rid of distressed properties as fast as possible.
City officials say some lenders delay taking possession because they want to avoid paying taxes and upkeep. Legal aid lawyers say banks may be trying to hide steep losses that could attract regulators. Industry officials say lenders are swamped during these difficult times.
“I’ve not heard of any intentional acts,” said Berry Laws III, a creditor’s attorney who represents lenders in foreclosures. “There’s just a glut. Lenders are overwhelmed with properties.”
Whatever the cause, experts say that the trend, which began around January, is spreading silently across the country and suggests that the number of failed mortgages may be far higher than official foreclosure counts disclose.
“There are more and more properties falling through the cracks,” said Joe Schilling, a founder of the National Vacant Properties Campaign.
“What it means is that the crisis is a lot more complex than anybody knows. And the conclusion is that this is going to get much worse before it gets better,” he said.
Usually when a stressed homeowner falls behind in payments or surrenders the home to the bank, the lender forecloses to take back ownership and resell the house, often on the courthouse steps.
In Missouri, the process starts when a lender files documents in the recorder of deeds office. In Kansas, the lender goes to court.
City officials rely on those records to determine the owner, in order to know who to assess responsibility for a lack of upkeep, trash abatement or, in the case of abandoned properties, boarding up and demolition.
Now, increasingly, the city can’t find the responsible owner. There’s a past occupant, long gone, and a lender, which hasn’t filed a transfer of ownership.
In the last fiscal year, which ended April 30, the city sought to collect $1.4 million for mowing weeds, hauling trash and boarding up or tearing down vacant houses. But who pays?
“When we can’t find the owner, very often the law department can’t pursue the case,” said Katie James, an assistant city attorney. “This is just a new problem for the city.”
Pare was more forceful. He said the lenders should take more responsibility, but “in the end, the taxpayer is going to eat this.”
Maintaining a vacant house can cost thousands of dollars. Scrap-metal thieves can strip a vacant house down to the studs. Tearing down a house can cost $8,000.
“Let’s not beat around the bush,” Pare said. “It’s not fair.”
Pare said the city plans to mow the weeds and drain the pool at the house next to the Maddens and hopes the lender will pay for the work.
In fact, RE/MAX agent Chris Smart said he has buyers interested in the Waldo house and has called the lender, which records show is Countrywide Tax Service, an affiliate of Countrywide Financial Corp.
But, Smart said, “I can’t get anyone to call us back. Wouldn’t you think it would be in their best interest to get that house off their books?”
Countrywide officials did not respond to calls for comment.
The number of homes with ownership and futures in limbo is nearly impossible to estimate.
Lawyers with Legal Aid of Western Missouri are trying to come up with at least a partial list. Jeff Williams said he was reviewing 200 vacant properties for the city for possible action.
“If it’s been sitting vacant for a sustained period of time, it represents a security issue for the people who live on those blocks,” he said.
“In the past these lenders would turn these houses quickly,” he said. “They’re not doing that now. In some cases, a lender may start a foreclosure and then suddenly halt the proceedings and let the house sit.”
Some wonder if the reason banks delay foreclosure lies in regulations.
Banks are required to keep a minimum capital reserve to ensure they can sustain heavy losses. But banks have already lost billions of dollars. Now, many homes have plummeted in value, especially those whose values were inflated by questionable appraisals in the housing boom. Just foreclosing can cost a bank $15,000 or more.
“Many of these homes have book values that are far in excess of their actual values,” Williams said, up to 40% in the urban core, where naive speculators would later default. Lenders “may not want to charge that off and take the accounting hit.”
But John Meachem, a spokesman for the Mortgage Bankers Association, said lenders are applying a kind of triage to the crush of foreclosures. Last week the group reported that more than 1 million homes are now in foreclosure-the highest rate ever recorded. Meachem said lenders are so focused on trying to help consumers who want to stay in their homes that it is coming “at the expense of maintaining vacant homes.”
© 2008, The Kansas City Star.
Distributed by McClatchy-Tribune Information Services.
