Ruggles Introduces Plan to Fine Vacant Property Owners in Easton

Edward Sieger has a great report on Roger Ruggles’ new anti-blight plan:

Easton City Councilman Roger Ruggles said he plans to bring a vacant property law to council next month that would require owners to register their empty buildings and pay an annual fee based on how long a building has stood dormant.

Ruggles, who chairs city council’s planning committee, said the ordinance will be based on one in use in Wilmington, Del., since 2003. That ordinance assesses a $500 fee for properties vacant for at least one year but less than two years and up to $5,000 for those vacant for at least 10 years with an additional $500 for each year thereafter.

And:

Ruggles said he’s spoken briefly to the police department, which supports the idea of a comprehensive list of the city’s empty buildings that would, in part, let patrolmen know which properties should be empty…

About 360 of the city’s roughly 8,539 properties are either vacant lots or house an empty building, according to Becky Bradley, Easton’s planning and codes director.

This is the program I teased in this Patch column back in December.

The fairness argument for this proposal is impenetrable. Vacant land and properties decrease the value of neighboring properties as much as 20%. If you have a vacant property, you’re imposing a tax on nearby properties. It’s unfair, and the vacant property owner should have to pay that external cost.

This is a big problem with foreclosed bank-owned properties. Paul Muschick has an excellent article on how this problem is playing out in South Whitehall. These properties decrease home values throughout the whole neighborhood, but banks just sit on them because they don’t want to eat the losses. But in doing so, they’re passing the costs on to local governments.

Each foreclosure costs local governments $20,000. Three foreclosures = one more teacher you have to lay off:

Local governments should not let the moochers pass these costs on to taxpayers. Levying financial penalties on vacant properties is exactly the right way to fix this problem.

Vacant Lots Vs. Laying Off Teachers

How vacant and foreclosed properties are costing taxpayers:

This is the heart of the issue for local government. Vacant land and buildings not only drain value and reduce revenue, they require government action, and thereby increase expense. Derelict buildings and abandoned property exert a significant drag on local economic and fiscal health. They heighten the need for fire safety and police services, code enforcement, property maintenance, and demolition while damaging the quality of life and the value of surrounding properties. A recent Philadelphia study found that vacant properties can reduce neighboring property values by as much as 20 percent. The study calculated that such properties have resulted in a loss of $3.6 billion in housing wealth in Philadelphia, costing millions in lost property tax revenues. And the city is spending over $20 million each year to maintain vacant properties, a huge sum at a time of intense fiscal stress for local government.

That’s from a new Brookings paper on how cities can manage vacant land and foreclosed properties. The owners of vacant land and blighted properties impose significant costs on their neighbors and taxpayers. They should have to pay for it.

Philadelphia is looking at land banking to deal with this. Candidates for local government should be very interested in this issue. Cracking down on blight will produce more property tax revenue, meaning fewer teacher layoffs.

The Cost of Foreclosure

From Mike Konczal’s testimony on proposed legislation in California to make banks pay foreclosure costs.

Where Does Andrea Naugle Stand on MERS?

Nancy Becker, the Record of Deeds for Montgomery County, wants the county to stop doing business with banks that use the Mortgage Electronic Registry System (MERS):

Montgomery County Recorder of Deeds Nancy Becker is urging registers of deeds across state and the country to withdraw public money from any banks affiliated with the Mortgage Electronic Registry System (MERS), which she claims is undermining the practice of accurate land recording.

In recent years, mortgages have been assigned and reassigned multiple times, and when a bank or other entity doesn’t properly report these transfers, it makes it very difficult for homeowners to determine who holds their mortgages.

“It clouds the chain of title, and it’s prohibiting (officials) from recording revenues they should be recording,” Becker said.

Since 2004, she estimates the county has lost $15 million in fees from 139,798 mortgages recorded via the electronic recording system that fails to reflect assignments. Becker said she fields calls about once a month from a homeowner seeking help finding proof a mortgage has been satisfied, so the person can sell their house.

Yves Smith has been methodically documenting all kinds of flaws in MERS. Since the Recorder of Deeds’ responsibilities fall under the purview of Andrea Naugle, the elected Clerk of Judicial Records in Lehigh County, it would make sense for this to become an election issue. Is Andrea Naugle seeing similar problems to the ones in Montgomery County? What’s happening in Northampton County? It would be good to have title searcher Bernie O’Hare weigh in on MERS since I have no direct experience with it.

The Rental Option

David Kapell:

Here’s how it would work. The borrower would lose ownership of his home, but be allowed to remain as a tenant paying fair rent for a reasonable period after foreclosure, with the requirement that he cooperate in the foreclosure. He’d pay fair market rents as published by the federal government, ensuring a clear, national standard. If the borrower couldn’t afford to pay market rent, existing federal rent-subsidy programs could be extended to help tide him over.

At the same time, with borrowers now working with lenders, it would be much easier to gather all the documents necessary to process the foreclosure, unclogging the sort of paperwork roadblocks that have recently encumbered the mortgage industry. Lenders would wind up owning a portfolio of income-producing property that would be readily marketable to investors.

True, the process could force lenders to revalue the homes at significantly lower prices than what they have on their books. Then again, such revaluation is almost inevitable in the current housing market, and instability in the banking sector could be resolved with additional government support.

With the vast majority of underwater borrowers irrationally making a good faith effort to pay what they can, we need to do more to push lenders to meet them half-way.

What Hath HAMP Wrought

Paul Muschick at the Morning Call explains the new FTC rules for mortgage rescue companies:

Starting Jan. 31, companies that offer foreclosure relief services will be prohibited from collecting payment before providing services. They can’t collect until they provide a homeowner with an acceptable written offer from the loan holder…

Some states already have prohibited the collection of advance fees. Pennsylvania prohibits them unless a licensed broker obtains a penal bond to collect advance fees, which very few brokers do, said Ed Novak, spokesman for the state Department of Banking. The federal law will preempt the state law, meaning even brokers with bonds can’t accept advance fees.

Despite the protection Pennsylvania tried to provide, several people in the Lehigh Valley area lost money when they paid mortgage rescue companies and didn’t get services.

Paul goes on to point out that the reason these scam artists have flourished is because HAMP has been such an utter failure:

But one reason homeowners seek help from mortgage rescue companies is that the federally sponsored solution to the foreclosure crisis, the Home Affordable Modification Program, hasn’t helped nearly as many people as projected.

It was set up as a way to repay the public for the public money that bailed out banks when they were in trouble. Banks were supposed to ease the terms of some mortgages to help people stay in their homes.

The Obama administration had projected the program would help up to 4 million homeowners by 2012. But through October, only 483,342 active permanent modifications had been granted, and the number of trial modifications that had been canceled outnumbered the number of active trials by more than four-to-one.

That’s pathetic. Is it not yet obvious to Congress and Treasury that the current approach of trying to nudge servicers into voluntarily modifying mortgages is not going to work? Congress needs to pass cramdown. If the threat of bankruptcy judges reducing principal balances is lurking in the background, banks will get serious about working with distressed borrowers. The alternative seems to be deleveraging through massive defaults.

Turning the Corner on Foreclosure Fraud?

Big win on the foreclosure fraud front today in Massachusetts. From Bloomberg:

US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts….

More background on the case and the implications here and here.