NPR did a story yesterday on how some banks have decided to demolish foreclosed properties in Cleveland and give the land to local government for its land bank because it’s a way to save save the costs of servicing these properties with the added benefit that it helps stabilize the neighborhood. The agreement was described this way:
The Cuyahoga County Land Bank, a quasi-government corporation, offered lenders a deal: We’ll take your worst houses, if you pay to knock them down. This year, Fannie Mae and some of the country’s biggest lenders — including Bank of America, Citibank and Wells Fargo — will help pay for half of the land bank’s 700 scheduled demolitions.
Based on what I’m seeing, it makes sense to demolish these residences sooner, rather than later. I’ve seen homes open to raccoons and water damage that just keep deteriorating. No one is ever going to buy them and fix them up. With the banks sharing the cost of demolition in these circumstances, it becomes possible to stop the trend toward blight in the surrounding community. The vacant land can be used as green space or bought by someone who wants to build a new residence. We’re finding that in some circumstances these properties are more marketable if the derelict house is gone.
Persons who do work without a permit or allow bedrooms in basements that are in violation of the building code risk more than fines. In a tragic case in Ann Arbor, a homeowner’s daughter died along with another person because of a fire in the basement. The owner was charged with renting without a certificate of compliance, illegal occupancy of the basement, inadequate smoke detectors, and inadequate exits from the basement by the local prosecutor. The public just doesn’t understand how building inspectors save lives.
The Chicago Tribune has taken on lenders over the devastation that has befallen neighborhoods while they sit back and let property deteriorate. I’ve noticed a phenomenon in my practice when I’ve researched properties in foreclosure that have code violations. Lately I am seeing more and more foreclosure actions that are stalled after the lender obtains a judgment of foreclosure. No sheriff sale takes place or the sale is canceled. The lender doesn’t take the steps to get the deed and tells the local government that it’s not responsible for the property even though the owner is long gone. The article in the Tribune discusses the consequences of such business practices:
Such legal maneuvers by banks, which in many cases either walk away from properties that aren’t worth selling or let foreclosure proceedings languish in an overwhelmed court system, have left thousands of dilapidated vacant houses in ownership limbo citywide.
At the same time, the financial industry is fighting against proposed legislation in Illinois that would make it responsible for the upkeep of a property once a foreclosure suit has been filed if the property is vacant.
Insurance companies can be allies in the fight for life/safety compliance. They have considerable power over property. If persons insured by the companies don’t live up to the standards of the policy, they may lose their insurance benefits. A judge in Massachusetts has ruled that an insurance company does not have to pay for a fire that occurred at a restaurant because the owner did not properly maintain a fire suppression system. The Insurance Journal reports:
At issue is an exclusion in a commercial lines policy issued to the French King restaurant in Erving, which required the restaurant owner to maintain a fire suppression system. The insurer — Interstate Fire & Casualty Co., a subsidiary of Fireman’s Fund — claimed that the fire-suppression system installed at the restaurant was obsolete, and therefore triggered the exclusion and did not require them to indemnify the restaurant.
The court agreed and ordered the restaurant to pay back the $15,000 advance given to the owner before the investigation was completed. I’ve always wished there was a separate registry of properties and their insurance companies so inspectors could alert the insurance company about dangerous conditions. (I make no comment as to whether this might violate privacy laws in some states). Most owners will act so they don’t lose their insurance unlike the owner in this case. The article said that the owner could have upgraded his system for $3,250. Unfortunately, fire inspectors have to repeatedly try and obtain compliance because of the real threat of fire while some owners only see the extra cost to themselves when asked to comply.
If your building department is investigated by the grand jury, you have big problems. Oakland, California’s building services department was the subject of a a grand jury report that blasted it for deficiencies in the areas of the abatement process; policies, procedures and training; information, communication and data management; due process (notices, liens, fees and fines); contracting; and appeals. Mercury News reported that:
The final report included several examples in which liens were recorded before issuing an abatement notice and before the property owner had a chance to respond or appeal the blight abatement order. The liens ranged from hundreds to tens of thousands of dollars and often had no relation to the actual costs of unpaid fines or abatement work.
The Mayor said that the department is undertrained and understaffed.
This is why continuing education is so important. If people aren’t properly trained, they will eventually violate someone’s constitutional rights thereby subjecting themselves and the municipality to civil rights lawsuits and other charges.
The creator of Phonehenge, a collection of oddball structures I’ve previously written about, has been sent to jail for disobeying a court order to demolish the buildings which were built in violation of numerous codes. Contempt of court is a useful procedure that is used when a person disobeys a court order. The court usually imposes a fine or jail until the person complies with the order of court. This is probably the most powerful tool that exists to force defendants to comply with the code. While I have filed many petitions for rule to show cause why a defendant should not be held in contempt of court, very few people have failed to comply and a tiny amount have actually been jailed. Just the threat of going to jail is usually sufficient to inspire a defendant to comply. Mr. Fahey, the defendant in the California case, has been defiant, according to the court. Defendants can be jailed for violating court orders even though jail time is not a possibility for the offense itself. Contempt requires a separate procedure from the code violation.
The Chicago Tribune has a very good article about how vacant properties (due to the foreclosure crisis) are decimating poor communities because of the increase in crime. This is something that I speak about at length when I teach my class on the relationship between law enforcement and code enforcement. These vacant buildings are crime magnets and can’t be torn down quickly enough. Vandals steal everything and anything from these buildings so people who might want to invest in and rehab them walk away in frustration. The remaining residents live in fear as the neighborhood gets even worse. It’s a pretty depressing tale but important to know about.
Building officials are constantly trying to get people to get permits for structures built without them. This becomes tricky when the construction occurred decades ago. In Austin recently there was a crackdown on illegal carports. Many of the owners didn’t own the properties at the time the illegal work was done. This is always a problem because when the construction occurred years ago, the statute of limitations has run and the current owners can’t be charged with working without a permit. If a structure was built contrary to the building code, there might be the possibility of charging the owner with occupying a structure without a certificate of occupancy. Most towns try to get voluntary compliance, even waiving fees. The goal is to make sure the structures are safe and code compliant. But, when there is a widespread enforcement action, local officials should expect forceful opposition from homeowners. When I encounter a problem like this, I like to do an education campaign first. My recommendation is to notify the owners of the problem but explain why compliance is important for their sake. I’ve found that this approach often gets compliance for 90% of the illegal structures. It shows the court that you’re reasonable and that you’ve tried everything before starting enforcement action. You’ll always end up with some people who don’t believe anyone can tell them what to do to their property but, thankfully, they are in the minority.
Thirteen percent of U.S. homes are now vacant according to a new report in the Huffington Post. Prices are dropping but people who have the money to buy are reluctant to enter the housing market fearing prices will drop even more. I think we’d hope that by now things would turn around but I’m not seeing much change in the areas around the country where I do seminars. I’m very concerned about properties that still appear to be owned by individuals but that the lenders actually own. Recently I was researching a property that the former owner told us he turned over to a lender last summer. He was right. We didn’t know though because the lender had never filed the necessary paperwork with the Recorder of Deeds. Consequently, all notices of violation went to him and not the lender. Whether this was an oversight or intentional, I have no idea but it sets us back even further in identifying the responsible party. I’m also seeing a number of judgments for foreclosure where the sheriff”s sale has never taken place. Sometimes this is due to a bankruptcy being filed but in other cases it remains a mystery. This is why ordinances to make lenders responsible for the upkeep of the vacant property prior to a foreclosure judgment are so critical to preserving neighborhoods.
There’s a bill pending in Illinois which would allow local governments to pass ordinances that would make lenders responsible for the upkeep of vacant properties in foreclosure. Needless to say, the lenders are fighting the bill. They’ve proposed a $50 fee per foreclosure that would go into a pool that local governments could draw from to reimburse themselves for their costs. $50 per property, hmmmm, that’ll go really far. Maybe it’ll cover half a lawn being cut, once. They must really think we’re stupid. I’m disheartend that when I contacted my state rep, I received a nice “thanks for your e-mail” message, completely ignoring the expertise on this issue I’ve developed. The banks say that they just wouldn’t be able keep up with all of the municipal ordinances that might be passed; maybe they would then know what it’s like to be an inspector who is desperately trying to reach a live human being at a lender when a property has 6 feet of water in the basement of a vacant home under foreclosure. I wish I wasn’t so cynical about the political process. I wish I believed it was possible that politicians would do the right thing and help local government preserve neighborhoods. I want to believe that if they only knew about the problems we face, they’d give us some meaningful tools. But, if they ignore our attempts to educate them, how can they make an informed decision?
