Suburbs Trying To Contain "Real Estate Panick" Caused By Vacant Homes

Discussion in 'Economics' started by ByLoSellHi, Mar 22, 2007.

  1. Another gloomy article, but hey, I didn't write it.

    I wanted to post this just because I think it is symbolic of the fact that the entire psychology surrounding real estate has shifted fairly dramatically in just the last 6 months.

    These stories were either non-existent, or were being concealed via some sort of grand conspiracy, while people were repeatedly told "you can't lose with real estate," for each of the last 5 or 6 years.

    Well, that sentiment has shifted. Obviously. In fact, there's been nothing less than a sea change.

    Foreclosures Force Suburbs to Fight Blight

    Published: March 23, 2007

    In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic.

    In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away. The officials are also working with financially troubled homeowners to renegotiate debts or, when eviction is unavoidable, to find apartments.

    “It’s a tragedy and it’s just beginning,” Mayor Judith H. Rawson of Shaker Heights, a mostly affluent suburb, said of the evictions and vacancies, a problem fueled by a rapid increase in high-interest, subprime loans.

    “All those shaky loans are out there, and the foreclosures are coming,” Ms. Rawson said. “Managing the damage to our communities will take years.”

    Cuyahoga County, including Cleveland and 58 suburbs, has one of the country’s highest foreclosure rates, and officials say the worst is yet to come. In 1995, the county had 2,500 foreclosures; last year there were 15,000. Officials blame the weak economy and housing market and a rash of subprime loans for the high numbers, and the unusual prevalence of vacant houses.

    Foreclosures in Cleveland’s inner ring of suburbs, while still low compared with those in Cleveland itself, have climbed sharply, especially in lower-income neighborhoods that border the city. Hundreds of houses are vacant because they are caught in legal limbo, have been abandoned by distant banks or the owners cannot find buyers.

    The suburbs here are among the best organized in their counterattack, experts say, but many suburbs elsewhere in the country have had jumps in foreclosures and are also working to stem the damage.

    Outside Atlanta, Gwinnett and DeKalb Counties have mounted antiforeclosure campaigns while several towns south of Chicago are forcing titleholders to fix up empty houses, or repay the government for doing it.

    Here in Ohio, there are more than 200 vacant houses in Euclid, a suburb of Cleveland north of here. In the last two years more than 600 houses in Euclid have gone through foreclosure or started the process, many of them the homes of elderly people who refinanced with low two-year teaser rates, then saw their payments grow by 50 percent or more.

    Euclid has installed alarm systems in some vacant houses to keep out people hoping to steal lights and other fixtures, drug users and squatters. The city has hired three new building inspectors, bringing the total to nine, to deal with troubled properties and is getting a $1 million loan from the county to cover the costs of rehabilitation, demolition and lawn care at the foreclosed houses. (When the properties are sold, such direct maintenance costs will be recovered through tax assessments.)

    The Euclid mayor, Bill Cervenik, said the city, with a population of 53,000, was losing $750,000 a year in property taxes from the empty houses.

    At greatest risk in Cleveland’s suburbs are the low- and moderate-income neighborhoods where subprime lending has soared. The practice involves lenders issuing mortgages at high interest rates for people with lower incomes or poor credit ratings, usually involving adjustable rates and sometimes no down payment and no investigation of the borrower’s circumstances.

    “What makes the subprime mortgages so devastating from a community perspective is that they’re so concentrated geographically,” said Dan Immergluck, a professor of city planning at the Georgia Institute of Technology.

    Rosa Hutchinson Yates, 62, had kept up payments on her tidy two-story house on Chagrin Boulevard in Shaker Heights for 30 years. Now, she may well lose the house because of a disastrous refinancing deal in 2003 that brought her $24,000 in cash but bills she could not pay.

    Ms. Yates, who has worked as a beautician and a cocktail waitress, was emotional and confused as she tried to explain what happened. Though she signed the closing documents, she said she did not realize that she was getting an adjustable rate mortgage that did not include taxes and insurance.

    In 2006, broke and bewildered, she stopped making payments and the lender started foreclosure proceedings. A Shaker Heights city attorney said it appeared that illegally high fees might have been charged and that the broker had overstated Ms. Yates’s income, raising the possibility of a legal challenge.

    Ms. Yates, preparing for the worst, has learned that she can move into a subsidized apartment for retirees. But the thought is devastating.

    “When folks pay for a home, they expect to die in it,” she said, breaking into tears.

    In a report for Shaker Heights, Mark Duda and William C. Apgar of Harvard University found that expensive refinancing deals had been aggressively “push-marketed” in the city’s less affluent west and south sides, bordering Cleveland. They said that “the rising number of foreclosures threatens to undermine the stability” of those areas.

    “The moral outrage,” Ms. Rawson said, “is that subprime lenders have targeted our seniors and African-Americans, people who saved all their lives to get a step up.”

    About one-third of the residents in Shaker Heights and Euclid are black.

    Early last year, James Rokakis, the Cuyahoga County treasurer, started a countywide foreclosure-prevention program, which pays community groups to educate people about loans and help defaulting borrowers negotiate with lenders.

    In the late 1990s, Mr. Rokakis said, the flight of manufacturing jobs was the major cause of rising foreclosures but around 2000, the surge in careless lending began to wreak havoc.

    Mr. Rokakis estimated that more than three-fourths of the current foreclosures in Cuyahoga County involve subprime loans, some of them blatantly unwise or dishonestly portrayed to buyers. Only last year did Ohio tighten its laws to require more complete disclosures to borrowers.

    With so many homeowners running into trouble, the City of Cleveland has been unable to keep track of the number of vacant houses, said Mark N. Wiseman, director of the county prevention program. He estimates that 10,000 of the city’s 84,000 single-family houses are empty.

    Suburbs like Shaker Heights are trying to avoid the experiences of blighted neighborhoods in Cleveland like the one where Barbara Anderson lives. Ms. Anderson, 59, said her block of East 76th Street was fully occupied three years ago, but now about half the houses are empty.

    Many of the houses are filled with smelly trash and mattresses used by vagrants. They have been stripped of aluminum siding, appliances, pipes and anything else that scavengers can sell to scrap dealers.

    “It stifles you,” Ms. Anderson said of the squalor. “It lowers the value and affects the kind of people who are willing to move here. I’m embarrassed to say I live here.”

    Ms. Anderson, who works for the city ombudsman’s office, is president of a street association that is working with a county-financed group, the East Side Organizing Project, to salvage some homes. But so far, she said, “when we try to board the houses up, someone comes and tears the boards down.”

    Things are not as bad in the Moreland section of Shaker Heights, but residents are worried and angry all the same. Robert O’Neal, 52, has lived there nearly all his life and, until recently, could remember a house being empty for more than a month. Now on his block, 4 of the 12 houses are vacant, 3 of them for more than a year. Lost jobs, divorces and predatory loans have all played roles, he said.

    “It’s sucking the life out of the neighborhood,” said Mr. O’Neal, the town’s chief probation officer. “These are big empty houses near the Cleveland border, and people start worrying about letting their kids out to play.”
  2. duard


    That is a sad, sad story.
  3. Why is it sad? Cause some officials are crying about it?

    You want some sad stories, why don't you check out how Buffalo & Rochester were devastated in a similiar manner. Or Baltimore. Or even Pittsburg. Or best of all, Detroit.

    Mortgages are only part of the equation, the real variable is the offshoring of the manufacturing base and now, the tech base. For many of these smaller cities & towns, all it takes is one major corporation moving a location outside US to see major devastation.

    Don't worry, the next step has already been planned. The prison complex is already doing their lobbying, just a matter of time before more human storages are built in the newly devastated areas.
  4. MattF


    blah blah morals my a$$...why is it with every story I hear that these people "didn't now what they got even though they signed the documents..."

    READ dammit...OK, *maybe* in this case this person got screwed due to which case it should work out OK in the end, just not w/o some wrangling...but other then that, I have no sympathy for these idiots who signed into these agreements and now "claim" they didn't know what was in them.

    Beyond that, the RE market is up and down everywhere...for every area that goes up, another crashes...if not more...and it's not as mentioned only the mortgages...some town's entire livelihood depends on a company or 2...they go, goodbye to the housing market.
  5. Raul641


    MattF - I imagine the broker who put the papers in front of that lady didn't exactly go into details beyond "you'll get $24,000 for signing here."

    I'll agree that it's pretty dumb to sign something without understanding it. At the same time, it's pretty evil to set up an operation whose primary business plan is to go around seeking out dumb people and screwing them out of their houses.
  6. 'In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away'.

  7. I used to work about 5 minutes from Shaker Heights. Man, that neighborhood has seen better days. I feel bad for the old lady though.
  8. I wonder how many of these same people were net long tech stocks in March of 2000...
  9. I'm with Matt. If you signed something and got screwed because you didn't understand what you were getting into, then sucks to be you. I have no sympathy.

    If you were swindled, that's another thing. But most of these folks thought free money would be forever and the real estate boom would bail them out if it was not. None of them had the intellect to go "what if?" Typical story here in America. Bail out and blame others for suffering that was our fault.

    Not this time. This time you owe what you signed.
  10. Tough shit! Anyone with half a brain should know that no one gives you $24,000 for nothing! Especially someone who's lived past the age of TWELVE.
    #10     Mar 23, 2007