Why the need to treat foreclosures differently? If an owner (whether individual or bank) lets the lawn grow to 2 feet, the city should have the right to clean it up and charge the owner/ put a lien on the property to adequately cover the costs. If the laws need to change for these costs to be put to the bank, lets change those laws. If unoccupied housing has a social cost, lets impose a corresponding tax on the owner (individual or bank) of the unoccupied home.

"Why the need to treat foreclosures differently?"

can't get blood from a turnip.

While not responding directly to the question in the post, this seems the appropriate forum for a comment that I've wanted to get off my chest for quite a while.

We’re all familiar with the axiom, “All real estate is local.” I’d like to extend that principle to argue that it can go much to a much finer level of detail that will impact cities in particular. Since I’m familiar with it I’ll use the SF Bay area as my example; I suspect that it is representative of many cities that aren’t located in areas subject to general economic distress (e.g. the Rust Belt).

In Bay Area cities we are seeing two housing markets evolve (yes, there will be coupling but that will come later and will be less than 100%). Even though volume is down, higher value neighborhoods have not seen much (if any) erosion of selling prices. The buyer's pool for homes in these areas have typically been homeowners for a number of years and have built up substantial equity, albeit reduced a bit recently.

But for the last few years buyers in the entry-level neighborhoods have largely been former renters, having no equity and with access to zero-down, low-introductory-rate loans; creating competition that bid up prices. Many of these new “homeowners” were enabled by community programs that reduced the entry cost even further, with the (at least) implicit promise that once they had made the cross-over from renter to owner they had caught the gravy train. But these folks are now the ones whose loans exceed the home value and whose interest rate resets are on the horizon. These neighborhoods are likely to be ravaged by REO’s and abandoned properties.

If this scenario is true, America’s cities will be much the poorer for it. Once again the middle-class (low/middle income homeowners) takes a hit while the wealthy are relatively unaffected (at least directly). But from a practical standpoint we’re all in this together…these two types of neighborhoods are frequently a mile or less apart. There will be an impact that cannot be avoided. Even those who reside in a gated community, cannot really “live” in a gated community.

For a description of how this is playing out in SF, see New real estate year starts with a tale of San Francisco's two cities

I think this is a splendid idea. Let's get the city government involved in the middle of a mortgage debt bubble just as foreclosures are accelerating. Because it is unlikely the city will no have budget problems due to shortfalls in tax revenue to occupy its time, it will have plenty of time to focus on the foreclosure quagmire. Ms. Warren is a genius and should get one of those genius grants to develop this idea in every city in the country. Kudos to you, Elizabeth.

Picosec,
It seems to me you are making a critical assumption error that wealthy neighborhoods won't be affected (much). Marginal sellers set the market. I can assure you that established neighborhoods are littered with recent real estate "tycoons" paying option only ARMs, so they can get even greater returns on their "investment." The problem is these "tycoons" are losing or have lost it all. They must sell (More correctly, the lender must sell). Since demand for housing is anemic at best, foreclosure sales prices will be much lower than current valuations and the rest of the neighborhood will be dragged down with it. Suddenly, those "affluent" neighbors who spent home equity money like lottery winnings find themselves upside down and the ugly spiral has begun. Yes, Picosec, even the people who appear wealthy are very vulnerable when leverage is used.

"I would guess that the loudest and first complaint will be about "spending taxpayer money" on cleaning up the mortgage mess."

Good Guess. My comments need not go much further than that. This is just another feel good but ultimately ineffective or unworkable idea from people that think more government (or 'more training', I love that one) is the answer to every problem.

I can see the point of such an investigator if his purpose is to prevent properties from getting stuck in limbo (empty and unsold). The fact is that most of those who are facing foreclosure are idiots or fraudsters who should get their knuckles rapped by having to move and being banned from borrowing money for a few years. I would also say the same thing about the people who loaned them the money. The bad outcome is when you get a neighborhood full of empty houses without clear title. I think that it also might make sense to limit how long a bank can hold a foreclosed property to prevent it from turning into a crime magnet.

It is hard to imagine any US cities that will not be overwhelmed by their own problems with decreasing tax receipts for the next 3 to 5 years. Adding a new 'service' and pushing themselves into yet another area where they will do their usual fumblethumbed 'management' job is just unwise. Every city department I've ever dealt with is marginally competent at best, aggressively assertive of their total ignorance at worst.

What about a 'New Homesteading Act' for the abandoned houses with unclear title? Something that 'streamline' the acverse possession type path to gaining title and support investment in the otherwise decaying properties by new pioneers?

IMNSHO won't happen without a good shot of radicalization, but if things head south enough fast enough you will have enough scared and angry FWO's (Formerly Well Off) that outcomes like this will be possible.

Very ineterseting article and spin. One I have never thought about but like very much.

Tanta said, "The legal issue, I assume, is giving the Foreclosure Investigator the right to demand documents or information from the lender/servicer/investor, either on behalf of the homeowner or in its own right. I have no idea how that would work technically."

This can be done just like a loan officer obtains a "borrowers authorization" in the loan origination process. You will use this same diclosure to present to the lender in order to conversate with lender about their mortgage.

As far as obtaining loan documents on behalf of the homeowner, disclosure or any accounting discrepencies is done via a "Qualified Written Request" or "QWR" whic under Section 6 of RESPA, requires that once the lender recieves a "QWR" thay have 20 days to respond and 60 days to furnish the information requested or answer as to why they have not furnished this info.

There are a few hedge funds that may pay for this Tanta, I don't think we need the City's money..........

Let me ask you this, if I was to organize a grass roots effort of Richard Davet's (fought for 11 years in Ohio) who all fight their foreclosure actions individually pro se or pro per in every court in the country. 1,000-5,000,10,000 homeowners, what do you think would happen?

Moe Bedard

This is the worst idea I have ever heard of. The mayor is NOT a party to a real estate transaction, and thus has NO standing in the foreclosure process.

I agree.

Mayors need to focus on the job of mayoring... keep the streets plowed & clean... make sure the police dept. is arresting the hookers, pimps and pushers (which can tear a neighborhood with vacant homes to pieces in a hurry)... make sure city sets the best example by maintaining its own property (parks, roads, buildings) and then enforce ordinances on private property for up keep, mowing, snow shoveling, junk & abandoned vehicles... Do all that (and it is no small task) and it will do a lot to see that the properties inside the city's domain retain as much value as is possible given market conditions. An environment like that is likely to see new buyers eventually replace those who have been foreclosed... plus give incentive to those not yet foreclosed upon to not walk away.

They have their plates full - they don't need another serving of problems, especially ones where they can have little positive effect.

Neal,

I'm going to have my in-laws stay at the abandoned house next door when they come to visit. I don't see it as a problem.

ck,
You are making the "its contained" argument which has been disproven repeatedly on this blog. The collapsing home prices will spread over all neighborhoods. Just give it time. It is still earlier on.

What a joke, "This is the worst idea I have ever heard of. The mayor is NOT a party to a real estate transaction, and thus has NO standing in the foreclosure process."

They get a direct benefit of every single real estate tranaction that happens in their city. While they might not be a "party", they are a beneficiary of both a foreclosure and successful sale.

Foreclosure = Negative Beneficiary
Real estate sale = Positive

They have a HUGE interest in how this plays out.

Most cities splurged on tax dollars during the boom and built elabroate city halls, police stations, new Charger cars for the police force, super duper hoses for the FD.

Local municipalities are going to go broke if they do not start doing something.

Lawsuits coming soon to a city near you.

But if you've ever driven through "Pentagon City" you know that Gruman isn't going to move to Loudon either.

And I'm in SoCal because I wanted to design and build and fly top secret airplanes. You see aerospace would never leave this area either so I moved here. Of course back then engineers were protected class corporate assets unlike today where they are merely cost centers tolerated only as long as it takes to transfer their skill sets to Chindia. The claim that core urban area jobs are safe(r) is unlikely to stand up in this economy. Not only are core jobs more expensive but the business trend is the opposite of the old think that people follow jobs. The new paradigm is the jobs following the people out to the exurbs. NYC will still continue to be an outlier exception however.

When in doubt - create another position or layer of BS?? Not in my view.

Any city/county/state/federal municipality currently facing this kind of community fallout is in no position to create (nor fund) a "foreclosure investigator". Why? In two words - budget shortfall.

A better idea would be for all (city/county/state/federal) elected officials to actually do their jobs - enact guidelines, create ordinances, pass regulation and laws that curb/prohibit the activity that was allowed to transpire under their very stewardship which caused these conditions to florish in the first place.

Additionally, if our elected officials actually represented the interests of the community (the citizenry), instead of cutting deals with developers/retailers/etc., and deregulating various industries (banking/lending/etc.) in the first place, much of this could have been headed off and/or avoided altogether.

On a meta-level I am distinctly uncomfortable with municipal involvement. Municipalities have a vested interest in the outcome and based on many very bad personal experiences I can absolutely guarantee that the municipality will look out for its' own perceived interests to the detriment of all others.

I am still not sure what the FI is supposed to do. Slow the FC process? Prevent abusive FCs? Investigate the cause of FCs in the community? All of the above? Maybe if the purpose were clearer the value would be, too.

I think the point is that the mayors of these communities are going to see problems, if they're not already popping up. What do they do? It is time to start thinking about remediation. The idea of a foreclosure investigator doesn't seem to be a good option, for all the negative points everyone has made, still, we will all end up applauding the mayor who first finds a way to minimize the pain brought onto the community. Inserting more people into the foreclosure proceeding doesn't seem helpful, so the focus, (as I see it) should be on how to deal with the empty boxes.
I don't have a solution, but clearly the communities should have an "investigator" to track the problem and alert the entire community at large the scope of the problem. Then let the citizens vote what resources are appropriate to dealing with the problem. If nothing else, it'll make them feel as if they're doing something.
For what it's worth, I think "eminent domain" is the next catch phrase.

Watson is right, "Lawyers are beyond the reach of all but the wealthy. And legal aid for the poor is almost always for criminal cases, not civil.

I recommend [here it comes: more government] that most lawyers function as civil servants, providing universal representation in meritorious cases."

The middle class and upper class in in debt to their eyeballs and enslaved by debt. Yes, their problem. But in reality it's our country's problem.

I am predicting that these yuppee driving, 745 beemer drivin 20 someting crowd will start challenging these foreclosures. Even if it is only to buyt free rent in a million dollar home. Now multiply Sip and Buffy with the Richard Davet's of the US and you have a formidable foe to these foreclosure actions.

OK, enough of my black helicopter theories. Time to go work on the helicopter, "It's getting painted Jet Balck today Tanta!" Courtesy of Wall Street.

Again, I think that whether this particular idea of a foreclosure investigator is the right thing or not, we've got to have some better data. The assumptions aren't always making a lot of sense to me.
Tanta | Homepage | 01.09.08 - 1:21 pm | #

Tanta - I can see a 'Foreclosure Czar' maybe 'monitoring' developments on behalf of 'the city' & reporting back to mayor & council - more as a 'planning tool' so the city can effectively allocate resources (like making sure the worst hit neighborhoods don't collapse into decay - that can happen very quickly if the authorities are slow and we all know how speedy city workers can be).

But other than that what can the city really do? Doesn't the state have most of the legal jurisdiction? Or federal courts if it involves 'securitized' product?

I mean the best thing the city can do is try to keep those properties from 'accidentally' burning down so that their neighbors don't feel they too have to walk - yes/no?

I think Ms. Warren did the right thing: issue a proposal and see if anyone can come up with something better. The only hard fact we have is that without action the future is going to be awful. With action I think the future is only bleak. But I'm just naturally pessimistic. Perhaps someone from outside the "normal" political constructs of our communities will be able to think of something that will help--yeah I'm pointing at you dryfly and aheadofthecurve.

I am in favor of more legal aid financing to help poor people directly, but not in favor of telling the legal aid attorneys that they must prioritize mortgages over criminal charges, domestic violence, etc.

I am very much in favor of something that was mentioned on the "make the bank pay for the abandoned house" thread a few days ago, and that has been alluded to in this thread. I think it was Ray who said the other day that the cities should be moving promptly to enforce their tax and maintenance liens. I don't know whether "Foreclosure Investigator" is the best title for the position, but towns would be well advised to get moving and think ahead on this issue.

Slapping on the tax and maintenance liens gives the town standing in any foreclosure proceeding. In the states I know about, the tax and maintenance liens have priority so the municipality can cut off the bank's interest if the bank isn't playing ball. The town should also have the ability to find out whether there is a real person who wants to live in the house and can afford it on reasonable terms, and maybe help cut deals accordingly.

The type of office I am talking about would definitely be acting on behalf of the town, not individual mortgage borrowers. Leave that to the legal aid attorneys, and let them decide with their individual clients whether the mortgage is their most pressing problem.

I think Ms. Warren did the right thing: issue a proposal and see if anyone can come up with something better.

I agree - kudos to her. But the mayors office is the wrong place to do much more than monitor local conditions. That's the problem. They just don't have the resources nor the jurisdiction to force meaningful action...

I've always believed that each layer of gov't has to do IT'S mission and do it well then leave the other levels to do theirs... its like hockey... looks like chaos and that no one knows what the others are doing but if done well there is structure, believe me.

If everyone does their job then the tasks mostly get covered... overlap tasks and then even less gets covered (as some get covered twice and some not at all) and resources wasted (could even negate each other if not coordinated well).

There is one thing the mayors office can do regarding foreclosures - monitor the situation inside their own borders and report often and openly. This allows for planning at the city level and makes it harder for state & federal authorities to ignore their responsibility (make them do THEIR jobs too - like regulate lenders & prosecute fraud). If that isn't getting done there isn't much mayors can do except (1) bitch openly & loudly and (2) do the best job they can to make sure the houses & neighborhoods don't burn down. Do that and they've done a lot.

You know, dryfly, I don't really know if it's what Warren has in mind, but I guess what I have in mind is more the FC Researcher than either the FC counselor or the FC cop.

I agree that's maybe what SHOULD be proposed - I didn't read that into it. I understood the proposed role to be more of an active party.

If a city authorized researcher or monitor - good idea - understanding the problem so effective planning can occur is never bad.

There isn't much else the city can do - these are FAR bigger problems and way beyond their scope & resources. Trying to do something they can't just means they won't be able do their other tasks well.

‘So how does the subsidized legal assistance service decide what's "meritorious" and what isn't? Some kind of . . . foreclosure investigator?’

Yes, like intake/triage at a hospital.

Jean Valjean needs a Javert.

"Can anything be done at the city level?"

By all means, check out "Housing Wire" (featured on the right hand side bar here at CR), and click on item "City of Baltimore Sues Wells Fargo Over Subprime Mortgages" -

"The city is suing for lost revenue and added costs associated with foreclosures, as well as for punitive damages."