Vacant Properties Compound the Forclosure Disaster
You don’t have to be a policy researcher to know intuitively that mortgage foreclosures and vacant and abandoned properties are a serious threat to the well-being of a neighborhood. An increase in foreclosed properties in any neighborhood, especially a high concentration of properties in one neighborhood, creates an oversupply of housing stock (including low value distressed properties and short sales) that result in lower prices for nearby properties. This of course has a spillover effect on appraisals, reinforcing the downward pressure on prices. Finally, vacant properties become targets for vandalism, theft or arson. The longer properties sit vacant, the higher the cost to the community at large.
Because the foreclosure process varies from state-to-state, the length of time from a first delinquency notice until the property becomes REO (real estate owned, when title is transferred to the lender at the end of the foreclosure process) can be from a minimum of 40 days up to a year or more. REO properties can languish longer in both weak and strong housing markets because of tighter credit conditions for the average buyer.
The numbers are sobering. There were two million foreclosures in 2009. As many or more predicted by the end of 2010. The resulting number of potential additions to the inventory of REO properties, according to research by Amherst Mortgage Insight, is estimated at upwards of 7 million properties nationwide.
Local governments are not powerless to prevent this problem. There are strategies that may be implemented in order to prevent properties from abandonment. These include:
- Vacant property registries
- Artistic boarding
- Liens and fines to accompany tougher code enforcement
- Purchase and resale to occupants or tenants
- Conversion to rentals
- Stay Put Notice
For a detailed explanation of these strategies, read the longer article in Nation’s Cities Weekly, NLC’s officials news publication at www.nlc.org.