Foreclosure Bonds

decline of some foreclosed homes in Detroit

New Orleans   This is such a short limb, I don’t mind crawling out on it: every community needs a foreclosure bond. OK, I’ve said it, now what am I talking about?

I interviewed Gary Davenport on Wade’s World who now works for the Mahoning County Land Bank, which is an interesting operation itself, based in Youngstown, Ohio, one of the many ground zeros in the deindustrialization in the Rust Belt. Gary and I had met briefly four years ago when I was visiting the Youngstown State University and its Center for Working Class Studies and met with community organizers there. When we were talking recently, he had told me about some interesting campaigns that the MVOC, the Mahoning Valley Organizing Collaborative, had won when he was working as a community organizer there.

Here’s what it says in the city codes now:

Foreclosure Bond Requirement. Any owner of a property which files a foreclosure action against such property, or for which a foreclosure action is pending, or a judgment of foreclosure has been issued shall, in addition to all other requirements of this Section, provide a cash bond to the Deputy Director of Public Works or his or her designee, in the sum of ten thousand dollars ($10,000.00), to secure the continued maintenance of the property throughout its vacancy and remunerate the City for any expenses incurred in inspecting, securing, repairing and/ or making such building safe by any legal means including, but not limited to, demolition. A portion of said bond to be determined by the Deputy Director of Public Works shall be retained by the City as an administrative fee to fund an account for expenses incurred in inspecting, securing, repairing and/ or marking said building and other buildings which are involved in the foreclosure process or vacant.

Yes, it’s a city ordinance and that’s how city lawyers write, but you get the point. Past the problem of foreclosures themselves and the tragedy they bring to families is the attendant devastation they bring to communities, often because the bank and its servicers have limited incentives to take care of the property and the upkeep while they are trying to get it off their books. This is a problem is all communities. In neighborhoods where there is already depopulation due to deindustrialization, natural disaster, or changing demographics, houses can sit vacant for long periods, pulling down values throughout the neighborhood and posing safety hazards and attractive nuisances. Budget strapped cities are forced to step in to cut grass, trim trees, and sometimes to demolish the structure, and left footing the bills. The bond simply forces the mortgage holding institution driving the foreclosure to put their cash down, and do the job, so they can get their money back, and if not, the requirements of the full code give the city a way to deduct the money from the bond to cover their costs of doing the job for the bank and its servicers. Other than the fact that maybe the bond should be higher, this should be standard in every city of any shape and size!

Gary said they had picked up the idea from another community organization, ADT, in Springfield, Massachusetts, and it had now been enacted in several other Ohio cities as well.

Here’s a shout out to community organizers and, what the heck, to city officials: let’s get a foreclosure bond campaign in gear!

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Not the Doctor to Fix America’s Housing and Urban Issues

558New Orleans  It is hard to escape the feeling that the only reason that President-elect Trump is preparing to recommend Dr. Ben Carson as Secretary of the Department of Housing and Urban Development (HUD) is because he is an African-American, and that somehow aligns with Trump’s view of those parts of urban America where he doesn’t have any financial interests in golf courses, hotels, or casinos and are too far to be seen from any of his towers. I can almost see his gears grinding as he comes to the conclusion that urban means crime means black, so let’s tweet!

Carson might argue, as undoubtedly he will, that he’s “good to go” in this job because he lived in public housing in Detroit. If that’s a qualification for running the immensely important HUD operation, then there are several million residents of public or subsidized housing that would arguably be more able to make that case for their own candidacy than than the rich, right neurosurgeon, Ben Carson. Paul Newman was probably Trump’s first choice to run HUD, because after all he starred in a movie called “Hud,” so that probably would have been perfect in Trump-tweet-world, and he probably was disappointed when someone told him that Newman was now dead.

Carson is wrongheaded, but that is not to say that he’s not a smart man, which is why he dillydallied around for weeks after his name first surfaced, probably hoping that he would be offered something different where he wouldn’t have had to buy a clue. Bromides about bootstraps are not really a plan for fair housing or urban development. Retooling Community Development Block Grant money, specifically designed for lower income communities into some kind of pretzel-shaped monstrosity that funds real estate developments and hotels and other stuff that the boss in the White House might embrace, is hardly a fix for anything other than some developer’s profit-and-loss statement.

The only thing that emerged clearly from Carson’s campaign was his interest in increasing his book sales. Even if he cajoles every housing authority in the country into buying a copy, someone needs to tell him that most housing project residents are not going to be running over to make sure one of his volumes is in their libraries. The campaign was recent enough that most of us can recall that in the debates, Dr. Carson was pretty much lost at sea on both domestic and international issues, none of which will make anyone who cares about the desperate needs of urban America sleep better knowing that he is running the show.

The fact that Carson has no experience in running anything doesn’t matter to Trump and almost seems like nitpicking for us to point out since almost none of Trump’s other appointees have much of any experience with the content of their coming portfolios either. I would hate to pick on Carson for that, because it would seem like I was discriminating. Nonetheless, former Philadelphia Mayor Nutter may have said it best in talking to a Times reporter about the likely incoming HUD Secretary:

“I’m proud that I had seven years with President Barack Obama, who actually knew about community development because he was a community organizer,” Mr. Nutter said. “To the Philadelphia city government: Good luck dealing with the Trump administration.”

And, good luck to the rest of us and the country!

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Bottom Feeders, Home Dreamers, and Big Time Realty Schemers

foreclosureChicago     When neighborhoods are wracked by foreclosures and the abandonment that accompanied the 2008 Great Recession and financial chicanery that popped the real estate bubble, significant studies have documented the loss in value experienced not only by houses on the block, but also houses within a mile away that also lose value. Put enough abandonment together and there is a tipping point that can change the reputation and economic reality of an entire neighborhood. It’s what blockbusting, real estate speculation, federal financing restrictions, and legal segregation did to thousands of urban neighborhoods fifty years ago. It’s also what inadequate foreclosure relief and similar speculation, credit deprivation, and legal indifference has the capacity to do now in thousands of communities not only in urban areas, but also suburban and exurban developments where a lot of the foreclosure crisis was centered.

Working with former ACORN organizers in the Phoenix area in 2009 and 2010 on an anti-foreclosure strategy in close-in Phoenix neighborhoods that had been working and lower middle income, brick, one-story houses, some even with small swimming pools, the foreclosed houses at 35 miles per hour wouldn’t look much different from those that were occupied, but slowing down or walking by, we could identify one in three that were clearly somewhere in the foreclosure process or already vacant. Houses that could have been valued at $150 to $200,000 in 2006 could be had for as low as $25 to $50,000 if a family would have been able to get credit, which was increasingly difficult under the tighter lending standards that accompanied the subprime lending market. The new suburbs of $250 to $400,000 houses 20 miles and more from the city center in the farther edges of Maricopa County were even in worse shape. We had meetings on some blocks where half to two-thirds of the streets were in some process of foreclosure.

Looking at the 153,000 properties in Michigan, Illinois, and Ohio on the RealtyTrac foreclosure list more closely, there were a lot of conclusions that became clearer with more attention. The Fannie Mae dump of these houses wasn’t for pennies in 2012, 2013, and 2014. These were not $1000 giveaways. Yes, many of them were likely substantially devalued from their original purchase price, and that information wasn’t available to us, but we could see that these were not giveaways for the most part, but more market-corrections that could have been achieved if banks had modified by reducing principal to market, rather than forcing foreclosure. Now, in many cases as the houses moved the ones getting to eventual resale often were returning to higher assessed valuations.

The other thing that was increasingly clear is that we were wandering in the land of hopes and perhaps shady dreams more than we were dealing with big timers. Of the 153,000 plus homes, almost 115,000 were acquired from FNMA by individuals, maybe folks hoping for a home, and maybe small timers thinking they might make a buck on the come. Another 9000 or so bought between two and five from FNMA, and they were surely small time speculators, often concentrating on one suburb or city and hoping for the market to recover so they could make a buck. About 60 outfits including the big timer, Harbour Properties, picked up 50 homes or more. It’s worrisome to believe that targeting the big boys might not be enough to catch the small fry and to sort out where the devil might be swimming in the deep blue sea on predatory contract-for-deed purchases as well.

The impacts of all of these real estate plays are somewhat off the radar now, but their impacts in communities, more of which are suburban and exurban that was imaginable decades ago, is going to be huge.

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Looking Under the Hood at the Tragic FNMA Foreclosure Dump

screen-shot-2016-12-03-at-9-18-38-amChicago   Foreclosures are terrible experiences for families and neighborhoods. More than 5 million homes were lost to foreclosures in the 2007-2008 housing crisis. Even today as home prices have largely moved back up to 2006 prices nationally, there are still more than 1 million foreclosures annually. As we all know, despite the numbers touted by big banks and government, the number of mortgage modifications was minuscule compared to the desperation and need of families, despite billions of federal dollars, because the banks drove the process, stuttering and stalling all the way while leaving millions under water, where many are still swimming.

After the pickup trucks, borrowed station wagons, and occasional moving vans pulled a family out of their home, sometimes with a sheriff pushing and real estate agent pulling them at the door, many of these homes ended up unsold and piled up in a heap at Fannie Mae, the Federal National Mortgage Association, the quasi-public-private guarantor of the mortgage. Finally, in the early evening, our team in Chicago, trying to get our arms around a campaign to stop the predatory practices of contract-for-deed sales, got a list of 153,000 names and addresses of foreclosed properties that FNMA had dumped onto the market when they couldn’t be sold. These were just the properties in three states with about 50,000 in Illinois, 60,000 in Michigan, and 43000 or so in Ohio.

Going through the list, name by name, was a little like walking through a graveyard and trying to read the tombstones. These are the properties FNMA couldn’t sell and ended up packaging in twos and threes to individuals, tens to real estate brokers and construction companies, and hundreds to investors, and thousands to equity hedge fund operators like Harbour out of Dallas. Looking at the list, Harbour had picked 2500 roughly of its reported 6700 in just these three states. The Detroit Land Trust ended up with a pile, as did the Wayne County Treasury Department, and a number of other city and county receptacles of last resort when even these tranche investors of foreclosed properties couldn’t off load them.

A column in the list was even more depressing in some ways because it indicated where the FNMA dump still stands smoldering like the trash fires of La Matanza outside of Buenos Aires. The columns noted whether or not the properties were owner occupied or not. Yes, meant, yes. Zero mean no. Any random grouping of 30 or so entries would find as few as 8 and as many as 10 or one-third occupied.

We are still trying to pull the information out of the data to determine where predation in the form of contract-for-deed purchases are being used to continue the pattern of destruction and exploitation. What is clear to me so far though, as my fingers walk through the columns in the foreclosures dumped by FNMA, is that this kind of FNMA garbage heap destroyed thousands of families and thousands of neighborhood, lowering values and leaving abandonment and vacant, now deteriorating homes.

No matter what campaign we outline by the end of these days of meetings, there is no escaping the human and community tragedy all around us.

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Predatory Contract-for-Deed Sales Cast a Long Shadow in Chicago

Picture featured in the December 1968 edition of the Jesuit Bulletin.

Picture featured in the December 1968 edition of the Jesuit Bulletin.

Chicago  Sometimes it felt like fifty years ago.

That’s only partially because sometimes the conversation would toggle back and forth to the work the Contract Buyers’ League did on Chicago’s West and South Sides decades ago from 1967 to 1972 or so, as strategies and tactics that would address the current, horrid, predatory comeback of contract-for-deed purchases were compared to the old campaign in a day long and continuing conversation between CBL veteran organizers and leaders, contemporary activists, and concerned community and clergy. It is also because we were literally sitting among the remaining survivors of the ghettoization and depopulation of North Lawndale and Austin as we met in beautifully paneled rooms in one rectory in Lawndale and slept in the former rooms of long reassigned priests in the empty floors of another rectory in Austin managed by one priest now, where eight had once lived.

Real estate manipulation, financial exploitation, and banking and institutional abandonment and racism built these 21st Century neighborhoods, even as we examined the great battles 50 years ago that were heroic without being a turning point and sat among the beautiful architectural and institutional ruins of that time. Contract-for-deed purchases are a way that a seller buys distressed property and then exploits a buyer, a family, almost invariably low-and-moderate income and too often minority, by flipping the property without making repairs while extracting predatory payments at huge premiums almost hoping for a default since there is no equity and a quick eviction process, since there was no actual property transfer, allowing the seller to sell again to another victim or another greedy seller, and keep the cycle going again.

The Contract Buyers League was a campaign, spearheaded by Jack Macnamara, a former Jesuit seminarian then, who sat with us today, and a steady stream of almost eighty college students who did stints in summers and school semesters off-and-on for years as volunteers to staff the research, hit the doors, and help the members put together the weekly Wednesday meetings and constant diet of pickets, actions, and events. Around the table were some of those former students, including by old friends and comrades-in-arms from ACORN, the SEIU, and AFL-CIO Mike Gallagher from Boston and Mark Splain from the Bay Area as well as Jim Devaney, a former volunteer from Cincinnati. A former Black Panther from those days and other community leaders now tried to puzzle out how, with the reemergence of contract-for-deed activity now in the wake of the foreclosure crisis and home lending desert for lower income and working families, we might be able to refashion a Contract Buyers campaign that could work and win now.

It goes without saying that today is different than 50 years ago. Rather than being concentrated in neighborhoods like Lawndale and Austin in Chicago and other cities with large minority populations then, today the victims are spread throughout the metropolitan area. We looked at a sample list of contract buyers acquired by two vulture hedge fund operators and there were few in Chicago itself compared to working class suburbs and developments like Homewood, Hoffman Estates, and Orland Hills. How would we get the density that put hundreds in a room on a weekly basis 50 years ago? Estimates are as high as 7 million families who are under contract-for-deed agreements now nationally, but putting them together wouldn’t be easy. We were all veteran door knockers, but we talked about how to use data files, voter lists, robo-dialers, social media, and other tools to flush out the victims and leverage the public policy and political space to create change.

There’s more work to be done in coming days, but two things kept returning us to the task of today. One was hearing our new friends from these communities where we were meeting talking about how their father’s and grandmothers had bought and raised their families in contract houses. Another woman speculated that the mystery of how her sister had lost her house might have been through a contract-for-deed rip-off, and she left at the end of the day to call her and finally ask. And, then there were the stories of the actions, lawsuits, and even some victories of 50 years ago to continue to remind us that we could only really lose, if we refused to fight this plague once again.

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Predatory Home Buying through Contract-for-Deed is Increasing

780c1b060773287590e252e572a03ba3New Orleans   Every report indicates that predatory practices are spreading when lower income families are trying to acquire homes in the current real estate market where banks have cut back on small loans, the subprime lending market has virtually disappeared, and vulture investors are trying to exploit the situation. The terrible result has been an increase in contract-for-deed purchases, if you call them that, of houses throughout the country.

RealtyTrac estimates that since 2009, there are at least 20,000 homes being purchased annually through contract-for-deed understandings and the number is rising. The National Consumer Law Center in a report published in July of this year called “Toxic Transactions,” estimates the number of contract-for-deed purchases at 3.5 million homes, but carefully argued that the number was likely much higher. Other experts have placed the figure higher than 4.1 million. This level of exploitation is a national crisis.

Several reports in the New York Times and the Washington Post have documented the increase of these kinds of transactions, particularly noting the fact that several hedge funds have swooped in to make bulk purchases of thousands of foreclosed homes in order to flip them into contract-for-deed agreements to drastically increase their return. Harbour Portfolio Advisors from Dallas was most notorious for purchasing 6700 homes from Fannie Mae in this way for an average of less than $10,000 per property and working with its servicer, National Asset Advisors of Columbia, South Carolina has been in the process of flipping them. The Consumer Finance Protection Bureau has reportedly stepped up its investigation of complaints on these home contracts, and not surprisingly both Harbour and National Asset have thus far refused to comply by providing documents. The NCLC report argues heavily for action by the CFPB to rein in the abuses common in contract purchases.

Contract-for-deed purchases have a sorry history that dates back to the racist government approved redlining of minority and low income neighborhoods before the passage of the Community Reinvestment Act in 1978. Little has changed though since many of these land installment purchases are opaque and outside of the reach of most federal protections currently and often totally unregulated in states as well.

The NCLC report is clear about why the odds are against the lower income buyer in every situation:

 

These land contracts are built to fail, as sellers make more money by finding a way to cancel the contract so as to churn many successive would-be homeowners through the property. Since sellers have an incentive to churn the properties, their interests are exactly opposite to those of the buyers. This is a significant difference from the mainstream home purchase market, where generally the buyer and the seller both have the incentive to see the transaction succeed.

I can remember meeting African-American families on the doors with ACORN in the early 1970s in Little Rock who had been paying on contracts for decades, even starting over in some cases and losing homes they had tried to buy this way. We keep thinking that we have cut the head off of these snakes, but somehow they reappear and victimize more millions.

Real estate, hedge funds, Wall Street, a property-mogul president, racial and income discrimination across the country in the wake of the real estate crisis to me all adds up to a campaign dying for action, and something that we could absolutely win, if we acted together and did so now.

***

Please enjoy Timothy B. Schmit’s Red Dirt Road. Thanks to KABF.

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