Need to be Bulldozed
A quarter of homes in long-term foreclosure may need to be bulldozed, according to the Cleveland Fed’s report. About 500,000 foreclosures in the U.S. are vacant, according to a housing study Fed Chairman Ben Bernanke sent to Congress in January. Many of them are “badly damaged,” he said.
Gloria Washington, 80, knows about dilapidated foreclosures first-hand. There are four of them on her block on the south side of Chicago. When she applied for a home equity loan last year to fix up her front walkway, she was turned down because her home’s value had plummeted.
“This used to be a good neighborhood, but now all our homes are almost worthless,” she said.
Whether a foreclosed property is occupied or not, its value is deteriorating, said Tom Popik, research director for Campbell Surveys, a real estate data firm in Washington. The mortgage servicers that oversee the homes aren’t likely to do major repairs, he said. Residents probably would solve a problem like a leaky roof by nailing a sheet of plywood over it, Popik said.
‘They Lack Money’
“They lack money -- that’s why they’re in foreclosure --so maintenance isn’t going to get done, and that’s going to hurt the value of the house,” Popik said. “Some of them feel abused by the system and are going to strip the fixtures, the hot water heater and even the kitchen cabinets when they go.”
Aging foreclosures also erode values in higher-priced neighborhoods, such as a community in Tampa, Florida, where properties sell for up to $500,000. A three-bedroom house with a double garage and a pool came on the market in January for $139,900 after being in foreclosure for almost three years, according to court records. When the case was finalized in December, the unpaid amount owed on the mortgage was $403,000, the records show.
In 2008 the same owner, a real estate investor, went through a foreclosure on a similar home located less than a mile away. In that situation, the foreclosure lasted six months, helping to preserve the value of the property. The house sold for $305,000 that same year and now is worth about $429,000, according to an estimate by Zillow Inc., a real estate data company in Seattle.
“You can easily strip $100,000 or more off the value of a property by letting it sit in foreclosure for an extended period of time,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “You’ve got to fill that home as quickly as possible.”
In Ohio, $75 million of an estimated $335 million it received from the Feb. 9 settlement between state attorneys general and servicers will be used to tear down vacant foreclosures, the state’s Attorney General Mike DeWine announced the same day. Banks held back on processing home seizures during the probe to avoid potential liabilities. U.S. Representatives Marcia Fudge and Steve Latourett, both from Ohio, last month said they would introduce a bill to provide $4 billion to issue 30-year bonds to demolish foreclosures.
"Have to be Dumped’
“Any homeowner knows that housing depreciates pretty rapidly if you don’t take care of it,” said Case, who created the index with Yale University professor Robert Shiller. “Some of the supply in the bin is going to have to be dumped.”
The average price of a repossessed property has dropped 22% to $146,285 since 2008, according to RealtyTrac, a foreclosure data firm in Irvine, California.
The age of the foreclosure backlog complicates 2012 price- forecasting, said Newport at IHS Global. The share of homes in the legal process of being seized was 3.5% in 2011 compared with 3.2% in 2010, according to CoreLogic Inc. in Santa Ana, California. Completed foreclosures fell to 870,000 in 2011 from 1.1 million a year earlier, the firm’s data shows.
“We don’t know how much damage has happened to these homes,” Newport said. The properties “are going to have a lot of wear and tear in an already weak housing market.”
Even if the sale prices of long-term foreclosures affect the value of homes in the wider market, it’s still better to get rid of the properties as quickly as possible, said Stan Humphries, Zillow’s chief economist.
“We deferred a lot of the pain of foreclosure during the post-robo-signing period,” Humphries said, referring to the fraudulent signing of affidavits that sparked the servicer probe. “Getting those homes onto the market and getting them sold is the only way through it.”
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